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News About Tech, Money and InnovationFri, 09 Dec 2016 15:31:25 +0000en-UShourly1https://wordpress.org/?v=4.6.178053529Copyright 2016, VentureBeatVentureBeathttp://vbstatic.co/brand/img/logos/VB_Extended_Logo_40H.pnghttp://venturebeat.com
25040Venturebeat.comUnicorn Club loses its luster: Just 9 new entrants in Q3 and a $30 billion valuation progressionhttp://venturebeat.com/2016/10/14/unicorn-club-loses-its-luster-just-9-new-entrants-and-a-30-billion-valuation-progression/
http://venturebeat.com/2016/10/14/unicorn-club-loses-its-luster-just-9-new-entrants-and-a-30-billion-valuation-progression/#respondFri, 14 Oct 2016 14:10:53 +0000http://venturebeat.com/?p=2079578This quarter’s funding was marked by both very slow funding and a small number of overall deals. In the third quarter of 2016, 35 unicorns raised a collective $8.38 billion from 38 funding events. This represents a staggering decrease in funding compared to the third quarter of 2015, both in terms of money raised ($17 […]
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This quarter’s funding was marked by both very slow funding and a small number of overall deals.

In the third quarter of 2016, 35 unicorns raised a collective $8.38 billion from 38 funding events. This represents a staggering decrease in funding compared to the third quarter of 2015, both in terms of money raised ($17 billion in Q3 2015) and the number of funding events (61 vs. 38).

Looking at the evolution of company valuations, we saw 19 up rounds, 18 unchanged valuations, and only 1 down round — Wandoujia, acquired at an 80 percent reduced price, compared to its previous $1 billion valuation. The combined value progression for those companies is still a positive $30.42 billion (compared to $75 billion in Q2), suggesting degrading health for companies in the Unicorn Club (those that reach a billion-dollar valuation).

Above: A high-resolution Unicorn Club landscape from VB Profiles is available here. (Disclosure: VB Profiles is a cooperative effort between VentureBeat and Spoke Intelligence.)

Nine new unicorns in Q3

Ubtech Robotics: Ubtech secured $100 million for its early series B from CDH Investment. The Chinese maker of intelligent humanoid robots will be exploring more applications in education and entertainment.

OfferUp: The U.S.-based company raised 119 million in a series C led by Warburg Pincus, at a $1 billion valuation. The mobile marketplace for local buyers and sellers came out of stealth in 2015 and will use the capital to improve its user experience and expand to new markets.

Deliveroo: The food delivery service company raised $275 million, making it one of a handful of startups attracting investments in the competitive food delivery market.

Compass: After its $75 million series D round, the real estate platform will focus on growth into new markets and will further its seamless and intelligent home buying, selling, and renting experience for consumers and agents.

Unity: Valued at $1.5 billion after an $181 million series C led by DFJ, Unity is the largest global development platform for creating 2D, 3D, VR, and AR games and experiences, from Indie to Triple-A games.

Quanergy: The Silicon Valley startup developing self-driving car sensors raised $90 million at a new valuation of $1.69 billion. The company’s LiDAR sensors are already being used by five automakers developing automated vehicles.

Hike: WhatsApp’s rival unicorn in India raised a $175 million series D round led by Tencent, at a $1.4 billion valuation. The four-year-old messaging app startup is the first billion-dollar social company in India.

One IPO and two acquisitions

Nuantix announced in September that it had raised $237.9 million in its IPO. The California-based data center infrastructure provider had first filed paperwork for its IPO in December, but it held off on the proceedings for several months. The company was valued at $5 billion on the day of the IPO, up $3 billion from its last valuation in August 2014.

Jet.com was acquired by Walmart for $3 billion after many weeks of rumors. Jet.com CEO Marc Lore will remain in position and focus on Walmart’s U.S. ecommerce operations. The startup offers Walmart the ability to identify orders — in real time — that should be routed to an appropriate vendor in order to keep costs low and facilitates discounts on large orders.

The Chinese Android app store Wandoujia was acquired by Alibaba and incorporated into its mobile unit business. Wandoujia, once valued at $1 billion, was acquired for a mere $200 million after suffering from increased competition from smartphone makers like Huawei and Xiaomi, who opened their own app stores.

]]>http://venturebeat.com/2016/10/14/unicorn-club-loses-its-luster-just-9-new-entrants-and-a-30-billion-valuation-progression/feed/02079578Unicorn Club loses its luster: Just 9 new entrants in Q3 and a $30 billion valuation progressionVC funding hits 2-year low, drops 18% to $14.4 billion in North America as unicorns retreathttp://venturebeat.com/2016/10/13/vc-funding-hits-2-year-low-drops-18-to-14-4-billion-in-north-america-as-unicorns-retreat/
http://venturebeat.com/2016/10/13/vc-funding-hits-2-year-low-drops-18-to-14-4-billion-in-north-america-as-unicorns-retreat/#respondThu, 13 Oct 2016 11:00:18 +0000http://venturebeat.com/?p=2079614At long last, venture capital’s long-awaited return to normalcy appears to be happening. VC funding for the third quarter of 2016 slid for nearly every key metric: a smaller number of deals, less total funding, fewer +$100 million mega-rounds, and just eight unicorns created. And that was globally. For North America, generally, and for California, specifically, venture activity was subdued […]
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At long last, venture capital’s long-awaited return to normalcy appears to be happening. VC funding for the third quarter of 2016 slid for nearly every key metric: a smaller number of deals, less total funding, fewer +$100 million mega-rounds, and just eight unicorns created. And that was globally. For North America, generally, and for California, specifically, venture activity was subdued compared to most quarters, though still quite healthy. Some might even call this a return to capital efficiency.

“It’s worth noting that a bit of sobriety is a good thing. 2015 funding levels were irrationally high with a new unicorn being birthed every 3rd day as investors were keen to force-feed perceived startup winners with cash. That was not sustainable,” wrote Anand Sanwal, CEO of CB Insights, in Venture Pulse, a quarterly report published by KPMG International and CB Insights that was released today.

North American deals have steadily declined this year, with only 1127 venture financings worth $14.4 billion during the third quarter of this year, according to the report. U.S.-based startups received the lion’s share of this investment, albeit at a snail’s pace in the aftermath of the 2015 fourth-quarter slowdown. Investment tumbled 18 percent from the previous quarter, down to $14 billion. Without the outsized rounds to companies like Uber and Snapchat, VC funding for U.S. companies slid to the lowest total since the third quarter of 2014.

California, home to Silicon Valley, saw a sharp reduction in venture activity, with New York also witnessing a pullback. Of note, Massachusetts enjoyed a small uptick, with the number of deals rising from 88 to 95.

Funding for California-based companies hit a five-quarter low, as investment has fallen below $8 billion in three of the past five quarters. Last quarter’s temporary rebound was largely due to Uber’s and Snapchat’s mega-rounds. Again, just as Massachusetts enjoyed an increase in overall deals, funding to startups in the Bay State doubled quarter-over-quarter from $1.1 billion to $2.2 billion, thanks to the +$100 million rounds to Moderna, Intarcia, and DraftKings.

A closer examination of California reveals the depth of the venture slowdown in Silicon Valley. Without the combined $1.75 billlion that went to Airbnb, Mosaic, and Uber, funding for Golden State companies would have plunged into the Pacific.

But a glance at unicorn creation helps put this most recent quarter’s numbers into perspective, as we bid farewell to the froth of 2015. Twenty-five unicorns were created in the third quarter of last year, while only eight were minted in the same quarter this year. The previous two quarters each saw only seven companies attain this status, which suggests consistency and normalcy.

It will be interesting to see the impact from the IPOs of Nutanix and Line, as well as the pending debut of Snapchat, on venture activity for the rest of 2016. A regional summary from the report includes:

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]]>http://venturebeat.com/2016/10/13/vc-funding-hits-2-year-low-drops-18-to-14-4-billion-in-north-america-as-unicorns-retreat/feed/02079614VC funding hits 2-year low, drops 18% to $14.4 billion in North America as unicorns retreatWhy Palantir is Silicon Valley’s most questionable unicornhttp://venturebeat.com/2016/10/05/why-palantir-is-silicon-valleys-most-questionable-unicorn/
http://venturebeat.com/2016/10/05/why-palantir-is-silicon-valleys-most-questionable-unicorn/#respondWed, 05 Oct 2016 22:10:39 +0000http://venturebeat.com/?p=2072816GUEST: Gandalf: A palantir is a dangerous tool, Saruman. Saruman: Why? Why should we fear to use it? Gandalf: They are not all accounted for, the lost Seeing-stones. We do not know who else may be watching. Source: Lord of the Rings Valued at as much as $20 billion and inhabiting 15% of Palo Alto office […]
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GUEST:

Gandalf: A palantir is a dangerous tool, Saruman.

Saruman: Why? Why should we fear to use it?

Gandalf: They are not all accounted for, the lost Seeing-stones. We do not know who else may be watching.

Source: Lord of the Rings

Valued at as much as $20 billion and inhabiting 15% of Palo Alto office space with its 1,800 employees, Palantir is ranked third among American unicorns behind Uber and Airbnb, yet few people have ever heard it. The word secretive is most often used to describe Palantir, but it’s not too difficult to find out who it is, what it does and how it does it. Palantir is a secret because nobody cares about big data mining when there are rides to hail and strangers’ beds to sleep in.

Nobody cares about Palantir, but they should. Funded in part by the CIA, Palantir enables humans to dance with big data in a improvised tango of Q&A. It is the weirdest, sexiest, most fantastical company in Silicon Valley. Palantir may have had a hand in tracking down Osama bin Laden, a claim to fame that would make it the deadliest of the killer apps. It has ties to the CIA, the NSA, Special Ops, the LAPD, NYPD, the Center for Disease Control and countless other crime and disease fighters. JP Morgan (codename: Magnum) was one of its first anti-fraud corporate clients.

I know you use a lot of your tools to find bad guys. Maybe you can help me find consumers. ~ Hershey’s CEO J.P. Bilbrey connects the wrong dots

Palantir emerged from PayPal’s successful anti-fraud efforts that relied on humans and computers working together to stay one step ahead of the bad guys. Its spiritual leader is Peter Thiel and its CEO is Alex Karp, Thiel’s friend from his Stanford Law days and one of the zaniest guys in the Valley. Karp has a PhD in philosophy and is a self-described “somewhat deviant” person who loves skanky places where people smoke things and do things. Who doesn’t?
If you spend enough time researching the company, you can’t help but think about Palantir during sexual activity, wondering how big data can get.

The name Palantir comes from the “seeing stone” palantír of Lord of the Rings, the crystal ball through which events in other parts of the world can be seen. The culture of the company is a celebration of good versus evil with Save the Shire (Shire is the homeland of the Hobbits) as its corporate cri de coeur. Among private companies Palantir is the most popular destination for Stanford computer grads, yet the company does not pay well by Silicon Valley standards. Fighting evildoers and saving lives is its own reward.

And yet there may be trouble in the land of the data-mining Palantirians.

Last week there were reports of a discrimination lawsuit, and in May BuzzFeed reported a projected 20% employee turnover in 2016 and dissatisfied customers such as Coke (codename: Luda), Amex (codename: Charlie’s Angels) and Nasdaq (codename: Nancy Drew) that walked away because of their lame codenames. Sorry. That wasn’t why they walked away. They walked away because they believed that the Palantir product wasn’t worth its $1-million-per-month price tag.

The superhero culture of the Palantirians may be bumping up against the buttoned-down demeanour of its corporate clients. Selling more diet Coke doesn’t play as well in the imagination as fighting human traffickers, tracking a disease outbreak or finding Osama bin Laden.

Palantir tried to build a data consortium among its corporate clients because its product works best when it has mountains of diverse data to mine. Palantir needed a critical mass of disparate data to provide the kind of insights that would attract corporate customers, but the companies in the consortium were inherently suspicious of one another. They could not relate to a common good and refused to supply their data.

Palantir struggles with clients for whom there’s no clear and present evil. When there’s no bad guy, there is a danger that Palantir itself can go rogue with its arrogance. As top-tier clients walked out the door they were accused of lacking vision. Coca-Cola conceded that it had trouble relating to Palantir’s millennials.

Who works at Palantir? Have a look.

An aura of suspicion hovers over Palantir like a slow leaking Wiki, but it’s hard to believe that anything nefarious is going on in a place with pets, a plastic ball playpen and a save-the-world vibe that is led by a wacky philosopher and run by the cast of Glee. Yet there is Peter Thiel, the Dorian Gray of Silicon Valley, lurking in the background, seeking revenge on his enemies and supporting a presidential candidate who would happily curtail the freedoms of people he doesn’t like. At the Republican National Convention the man who helped supply the government with some of its most potent spying software said:

It would be kind to say the government’s software works poorly, because much of the time it doesn’t work at all. ~ Peter Thiel

]]>http://venturebeat.com/2016/10/05/why-palantir-is-silicon-valleys-most-questionable-unicorn/feed/02072816Why Palantir is Silicon Valley’s most questionable unicorn10 new unicorns in Q2 2016 as 33 firms raise $25.1 billionhttp://venturebeat.com/2016/08/05/10-new-unicorns-in-q2-2016-as-33-firms-raise-25-1-billion/
http://venturebeat.com/2016/08/05/10-new-unicorns-in-q2-2016-as-33-firms-raise-25-1-billion/#respondFri, 05 Aug 2016 22:40:57 +0000http://venturebeat.com/?p=2022638GUEST: This quarter’s funding year-over-year was marked by a higher total fundraising, but coming from a smaller number of deals. In the second quarter of 2016, 33 unicorns raised a total of $25.1 billion from 41 funding events. This represents a 70 percent increase in funding compared to the second quarter of 2015, but from fewer funding events: 41 versus 69. […]
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GUEST:

This quarter’s funding year-over-year was marked by a higher total fundraising, but coming from a smaller number of deals.

In the second quarter of 2016, 33 unicorns raised a total of $25.1 billion from 41 funding events. This represents a 70 percent increase in funding compared to the second quarter of 2015, but from fewer funding events: 41 versus 69.

Looking at the evolution of company valuations, we saw 20 up rounds, 11 unchanged valuations, and only 2 down rounds. The combined value progression is a staggeringly positive $75 billion, suggesting very good health — for the moment, anyway — for companies in the Unicorn Club, those that reach a billion-dollar valuation.

Unicorn valuation Q2 2016

10 new unicorns in the second quarter of 2016

The Unicorn Club continues to greet new entrants, but at a slower pace. The second quarter of 2015 saw the emergence of 25 unicorns. Growth slowed in the back half of 2015: 15 in the third quarter and 13 in the fourth quarter. The slowing trend continued, with 11 companies attaining unicorn status in the first quarter of 2016 and 10 in the second quarter of this year.

New unicorns Q2 2016

Above: The Unicorn Club Q2 2016.

Image Credit: VB Profiles

A high-resolution Unicorn Club landscape from VB Profiles is available here.

Here’s a quick overview of the newcomers:

Human Longevity is a genomics and cell therapy company focused on extending the healthy, high-performance human lifespan.Lianjia, also known as Home Link, owns 7 percent market share in China’s online and offline real estate services market.iCarbonX is aimed at building an ecosystem of digital life based on the combination of consumers’ big life data, internet, and artificial intelligence.Pivotal‘s cloud-native platform drives software innovation for many of the world’s biggest brands. They have millions of developers around the world.Age of Learning is the rapidly growing company that created and continues to actively develop the multi-award-winning ABCmouse.com Early Learning Academy.Ping An Good Doctor is a health care and medical service app offering text, photo, voice, and video consultation for preventive nursery care, guidance for doctor’s visits, post-diagnosis services, chronic disease management, medication alerts, and so on.Zoox is developing fully autonomous vehicles and the supporting ecosystem required to bring the technology to market at scale.SMS Assist is a Chicago-based technology company providing multisite property management to a roster of clients with more than 90,000 service locations.Cylance is a global provider of cybersecurity products and services that strives to change the way companies, governments, and end users proactively solve the world’s most difficult security problems.Liepin is a community-based recruitment site, offering an interactive high-end talent recruitment platform that bridges businesses, headhunters, and workplaces.

Twilio raised $150 million in its initial public offering, pricing the shares above the marketed range for a valuation of $1.23 billion. Twilio is only the second VC-backed tech company to go public this year, as high-valuation startups hesitate to file for IPO in a volatile market plagued with interest-rate uncertainty.

On the acquisition side, biopharmaceutical company AbbVie acquired Stemcentrx for $5.8 billion. Stemcentrx currently has five cancer drugs in development, with a focus on attacking the stem cells responsible for creating tumors. The acquisition will strengthen and accelerate AbbVie’s ability to deliver innovative therapies.

The AbbVie-Stemcentrx deal was dwarfed by Microsoft’s $26.2 billion purchase of LinkedIn. There is synergy between the companies and their products, particularly Microsoft’s Office productivity suite and LinkedIn’s core database of more than 400 million mostly professional profiles. The tie-up marks the coming together of the professional cloud and the professional network.

Didi Chuxing, the largest ride-hailing app in China, secured $1 billion in May from Apple, as China is becoming Apple’s largest market and Didi could become a major potential customer of Apple’s self-driving car. A month later, the company collected $7.3 billion in debt and mezzanine investment from a conglomerate that included AliBaba.

Uber raised $3.5 billion from Saudi Arabia’s sovereign wealth fund, gaining a crucial partner in its expansion into the Middle East. The new investment valued the company at $62.5 billion, making it the most highly valued venture capital-backed company in the world. (Note: The company’s valuation has now gone up to $68 billion.) The company has operated in Saudi Arabia since early 2014, and about 80 percent of its more than 130,000 riders in that country are women.

Ant Financial, the affiliate of Chinese ecommerce giant Alibaba that runs Alipay, has closed a funding round of over $4 billion, valuing the company at close to $60 billion. This made Ant Financial the second most valuable private technology firm, behind U.S. ride-hailing app Uber. The company has been on a drive to expand Alipay beyond China, particularly to help Chinese tourists make purchases abroad using its platform.

Addendum: In July, Uber announced the merger of its China division with market leader Didi Chuxing, just one year after calling China Uber’s “number one priority.” Despite Uber’s admission that it was losing $1 billion a year to build up its China operations, it could never close the market share gap.

This article is part of the Unicorn Landscape series. You can track this landscape and get all the latest news here.

]]>http://venturebeat.com/2016/08/05/10-new-unicorns-in-q2-2016-as-33-firms-raise-25-1-billion/feed/0202263810 new unicorns in Q2 2016 as 33 firms raise $25.1 billionSome execs remain optimistic the corpse of Silicon Valley’s IPO dreams may yet be resurrectedhttp://venturebeat.com/2016/07/12/some-execs-remain-optimistic-the-corpse-of-silicon-valleys-ipo-dreams-may-yet-be-resurrected/
http://venturebeat.com/2016/07/12/some-execs-remain-optimistic-the-corpse-of-silicon-valleys-ipo-dreams-may-yet-be-resurrected/#respondTue, 12 Jul 2016 13:13:15 +0000http://venturebeat.com/?p=2001793The IPO may largely be a thing of the past, but some business leaders are still holding out hope. In a new poll from Deloitte, a survey of 3,000 business leaders found that just over 40 percent believed the number of IPOs will increase “substantially” or “modestly” in the second half of 2016. About 26 percent […]
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The IPO may largely be a thing of the past, but some business leaders are still holding out hope.

In a new poll from Deloitte, a survey of 3,000 business leaders found that just over 40 percent believed the number of IPOs will increase “substantially” or “modestly” in the second half of 2016.

About 26 percent expect the current pace to stay roughly the same, while only 7.8 percent think it might get worse. The rest had no opinion.

These execs said they expected health sciences and tech to lead whatever IPO charge happens.

And while going public always carries challenges, the most crucial issue facing any company wanting to go public is timing the market correctly. Indeed, as we noted this spring, market volatility will likely leave the 22 companies that filed for IPOs to raise $1.5 billion.

The actual performance of the IPO markets in the U.S. has been terrible so far this year. In the first quarter, the eight IPOs were the worst since 2009. The second quarter saw the number of tech IPOs increase to four from two in the first quarter.

Certainly the IPO window hasn’t completely shut. Renaissance Capital, for instance, is closely watching 12 tech companies that it thinks could be likely IPO candidates in the next year.

Still, the revival of IPOs looks like a tough dream to sell. With unicorns continuing to multiply, at some point many of them are going to have to hope that a deep-pocketed suitor comes along if they want to see some kind of exit.

]]>http://venturebeat.com/2016/07/12/some-execs-remain-optimistic-the-corpse-of-silicon-valleys-ipo-dreams-may-yet-be-resurrected/feed/02001793Some execs remain optimistic the corpse of Silicon Valley’s IPO dreams may yet be resurrectedForget unicorns — it’s all about the narwhalhttp://venturebeat.com/2016/05/15/forget-unicorns-its-all-about-the-narwhal/
http://venturebeat.com/2016/05/15/forget-unicorns-its-all-about-the-narwhal/#respondSun, 15 May 2016 14:15:50 +0000http://venturebeat.com/?p=1950716GUEST: In November of 2013, Aileen Lee, founder of Cowboy Ventures, introduced us to the Unicorn Club. Since then, the club has grown from 39 members to several hundred. Earlier this month, we all read Bill Gurley’s much-circulated commentary on the state of the unicorn in the Valley. Unicorns have also been called ponies and T-rex’s. […]
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GUEST:

In November of 2013, Aileen Lee, founder of Cowboy Ventures, introduced us to the Unicorn Club. Since then, the club has grown from 39 members to several hundred. Earlier this month, we all read Bill Gurley’s much-circulated commentary on the state of the unicorn in the Valley. Unicorns have also been called ponies and T-rex’s. Today, the unicorn faces an existential threat – reality.

You see, unicorns are make-believe – like Santa Claus, the Easter Bunny, and the simplified tax code. That’s because unicorn investments are unrealized. Bragging about a unicorn is like boasting about making money in the stock market before completing a trade.

Recently, we’ve heard the word unicorn used as an adjective:

“He’s a unicorn VP pf Engineering.” (Translation: really, he’s an imaginary VP of Engineering … that must be why the product is late.)

All of these references to a mythical magical creature are confusing. Perhaps we need a new mascot for our best companies. One that is real. And liquid.

How about the unicorn of the sea? I present … the narwhal.

Above: A still from NatGioWild: https://youtu.be/YO58kt-jETA

Narwhals may not elicit thoughts of rainbows and lucky pennies, but the narwhal, unlike the unicorn, actually exists.

Like unicorns, narwhals have a horn — – actually a helical tusk

Like unicorns, narwhals are rare — there are only 75,000 in the world.

Like unicorns, their existence is threatened due to human actions … and discretionary write downs.

Unlike unicorns, narwhals swim in the ocean — so they are liquid.

A modest proposal

If companies with an unrealizedvalue over a billion dollars are called unicorns, then why don’t we refer to companies that have realizedoutcomes over a billion dollars as narwhals?

Narwhals are very easy to identify — must be the tusk. Instead of tracking imaginary unicorns, shouldn’t CB Insights, Forbes, and other publications be tracking narwhals? (This might reduce some of the subjective nature of their popular lists.)

Narwhals travel in packs, often referred to as portfolios. Rather than list unicorns, VCs should highlight their realized portfolio of narwhals.

Having just completed our latest fundraising at Lightspeed, I can tell you that our limited partners greatly prefer narwhals to unicorns (especially when narwhals are distributed). And as a general partner, there’s no comparison – narwhals are the ultimate achievement.

Barry is a founding partner of Lightspeed Venture Partners and focuses primarily on information technology infrastructure, with a specific interest in big data, cloud, IoT, networking, and storage. He has 18 years of venture capital experience, 10 years of operating experience and has been named to the Forbes Midas List of top 100 investors multiple times. He is a board member of Avi Networks, Dremio, MapR Technologies, Mosaixsoft, and Parsable. He previously led investments in Nimble Storage (Public, NMBL), Pliant Technology (acquired by Sandisk), Calista Technologies (acquired by MSFT), Arbor Networks (acquired by DHR), Growth Networks (acquired by CSCO), Maker Communications (Public, acquired post-IPO by CNXT), Memoir Systems (acquired by CSCO), Metasolv Software (Public, acquired post-IPO by ORCL), Sirocco Systems (acquired by SCMR), and Telogy Networks (acquired by TI).

]]>http://venturebeat.com/2016/05/15/forget-unicorns-its-all-about-the-narwhal/feed/01950716Forget unicorns — it’s all about the narwhalBrands: Consider this before you partner up with that cool new unicornhttp://venturebeat.com/2016/04/16/brands-consider-this-before-you-partner-up-with-that-cool-new-unicorn/
http://venturebeat.com/2016/04/16/brands-consider-this-before-you-partner-up-with-that-cool-new-unicorn/#respondSat, 16 Apr 2016 13:10:26 +0000http://venturebeat.com/?p=1921744GUEST: In one of the most popular ’80s movies, “Can’t Buy Me Love,” a stereotypical nerd bribes the most popular girl in school to go out with him. In digital media, the popular kids these days are the nerds, of course. And today the most popular of all are the “unicorns,” digital startups with at least […]
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GUEST:

In one of the most popular ’80s movies, “Can’t Buy Me Love,” a stereotypical nerd bribes the most popular girl in school to go out with him. In digital media, the popular kids these days are the nerds, of course. And today the most popular of all are the “unicorns,” digital startups with at least a $1 billion valuation. They include companies like Pinterest, Kik, Houzz, and Snapchat. And many brands are hoping to gain popularity by teaming up with them.

There are some good reasons to work with unicorns. They attract big (often young,) engaged audiences; they are building important new forms of communication and commerce; their growth rates are high; and, let’s face it, they do offer a few decent PR opportunities.

But there are also some good reasons why brands should be very careful when evaluating which unicorns to partner with.

Beware the Trojan unicorn

A few years ago, Twitter founder Ev Williams explained in a speech to Silicon Valley entrepreneurs how to get rich online. He cautioned that it’s not enough to invent a new business. Instead, he said, you have to take an existing business and reinvent it.

Many unicorns are so powerful that simply by tweaking their own strategy, they can upend entire markets and even strategic partners. Snapchat has started its own content platform called Discover that could compete with publishers that it partners with. Uber has several important strategic partnerships like CapitalOne, PayPal, and Starwood Hotels that fit well in their current ride-share model. With a huge valuation based on its logistics capabilities, however, it’s possible that one day Uber will introduce its own payment service or hotel app, hurting these partnerships. The company recently launched UberEATS to deliver food, so it’s not that far of a stretch.

Companies looking to work with unicorns should evaluate the overlaps between their business models and work out the possible effects of a unicorn’s competitive moves. Imagine if Pinterest started making and selling its own products. How would this affect a fashion brand partner? How will Kik’s new bot shop evolve? What if it starts making its own games? The best protection against this risk is to work on reinventing your own business as you try to work with the unicorns, which is crucial as consumers embrace such game-changers as smartphones, connected products, and advanced TV.

Working with unicorns is a lot of, well, work

Partnering with unicorns on early-stage projects is risky even when they aren’t upending your business model. It requires a lot of work and investment to test new features. Projects that started out hot can stretch out for months or even implode. Remember Facebook Beacons?

Even a standard feature on a unicorn platform requires that its partners learn new functionality, create new content, designate new people to engage and manage it, and analyze new metrics. Pinterest requires that a brand set up, update, and manage its own board. Houzz favors retailers that refresh images of client work regularly. Kik’s bot shop requires companies to create a functioning, interactive bit of software. At the same time, audiences have high expectations. If a marketer or publisher doesn’t put in the work to create quality engagements, it can be a waste.

Once you have determined you have the budget and the stomach to test a new feature, a good rule of thumb is to only forge a partnership with a unicorn if your target audience has reached critical mass there, your message is relevant, and you have the bandwidth to engage with audiences in a way that meets their expectations. Then focus on measuring the value as quickly as possible. In this way, you can ensure some decent audience engagement as you test the channel for revenue or branding potential.

Take note, though: Even after you’ve determined that it’s worth the work, the game can quickly change, requiring you to retool your plan. Pinterest stopped allowing affiliate links on its site last year, causing many “Power Pinners” a loss in revenue. Many bloggers and small business owners had to adjust their model to drive more traffic to their own site to make up for the lost earnings.

You’re not automatically cooler just by association

It might not be immediately clear if a brand can come across as authentic on a hot new platform. Pinterest is more than 80% female and has an artistic vibe. You might be surprised to see that Harley Davidson and Stone Brewing company have fantastic presences on Pinterest. These two brands are authentic for a few specific reasons. Harley actually has a large female following, and its iconic look takes well to the visual focus of Pinterest. Stone Brewing company has a high-minded brand approach that works well with Pinterest’s storytelling capabilities.

The best way to be as successful as Harley or Stone Brewing is to create a list of attributes of your own brand and the unicorn’s brand and lean into the common elements. Geico Insurance focuses on its gekko, not images of totaled cars, for example. NARS, a cosmetics company, previewed its fall makeup collection on Snapchat with a short video to create buzz, as the images expire quickly after they are seen; meanwhile, it showed a more in-depth version of the collection on its site.

Not every brand has to work with a unicorn from the start or be a launch partner for each new feature that a unicorn service launches. Some brands benefit from being mavericks, testing new platforms quickly and getting in front of “early adopter audiences”; others don’t. A stodgy furniture brand might benefit as a test partner with Houzz if it’s trying to reinvent itself. Consumer packaged goods companies, on the other hand, often get slammed for being over-eager to engage with audiences on every new platform that emerges before taking the time to understand how to approach the platform and its audience authentically. Many companies just might not be big or fast enough to be an early adopter but can allocate resources and build a program more slowly as the value of doing so becomes better established.

Just like in the high school cafeteria, navigating your relationship with the popular kids is full of twists and turns. In the end, only you can decide if the risks are worth the rewards of playing their game.

]]>http://venturebeat.com/2016/04/16/brands-consider-this-before-you-partner-up-with-that-cool-new-unicorn/feed/01921744Brands: Consider this before you partner up with that cool new unicornVCs raised billions in Q1 even as they made fewest investments in 3 yearshttp://venturebeat.com/2016/04/13/vcs-raised-billions-in-q1-even-as-they-made-fewest-investments-in-3-years/
http://venturebeat.com/2016/04/13/vcs-raised-billions-in-q1-even-as-they-made-fewest-investments-in-3-years/#respondWed, 13 Apr 2016 11:00:03 +0000http://venturebeat.com/?p=1923478ANALYSIS: At first blush, a review of venture capital dealmaking during the first quarter of 2016 suggests an industry gone mad. VC firms raised the highest amount of capital raised in more than a decade, even as they made the lowest number of investments in three years. What gives? The Q1 2016 Venture Pulse Report issued today by CB […]
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ANALYSIS:

At first blush, a review of venture capital dealmaking during the first quarter of 2016 suggests an industry gone mad.

VC firms raised the highest amount of capital raised in more than a decade, even as they made the lowest number of investments in three years. What gives? The Q1 2016 Venture Pulse Report issued today by CB Insights and KPMG provides some method to this madness.

On Monday, the National Venture Capital Association had reported that U.S VC firms raised $12 billion across 57 different funds to invest in startups, calling it the largest amount raised in 10 years. KPMG and CB Insights did not specify a figure for the amount raised by firms, but called the billions raised the most since the dot-com craziness of 2000. Regardless of the final amount, we’re talking about a vast amount of capital ready to be invested. For instance, Founders Fund raised $1.4 billion for a single fund, while Accel raised $2 billion across a pair of funds.

But with VC firms so focused on fundraising, they were apparently too busy to do much investing. In fact, U.S. deal activity slowed in Q1, with just $14.8 billion invested across 1,035 deals. (For all of North America, the numbers were only slightly better: $15.2 billion across 1,101 deals.)

At the current rate of activity, 2016’s figures will be lower than 2011.

Where did the money go? Forty percent of all investments in North America went to VC-backed Internet companies, 16 percent to mobile and telecommunications, 15 percent to health care, 4 percent to software (non-Internet/mobile), 4 percent to consumer products and services, and 13 percent to other.

Meanwhile, the biggest companies are likely to stay that way. The10 largest deals in North America totaled $3 billion and included several unicorns, those companies worth more than $1 billion. It’s likely that a significant portion of firms’ new capital will go to support unicorns, or to decacorns, those companies valued at more than $10 billion. Interestingly, these larger companies are seen as almost “too big to fail.” Even with their lofty valuations, they may remain attractive to late stage investors. “I think we’ll likely see more funding going to the decacorns in the near future on the basis that that’s where some of the risk is being de-leveraged,” wrote Francois Chadwick, national tax leader of KPMG’s Venture Capital Practice.

For this same quarter, however, only one new VC-backed unicorn was created, compared to 17 in Q3 2015 and 7 in Q4 2015.

Put in context of larger forces like the volatility of U.S. public markets, an economic slowdown in China, the U.S. presidential campaign, and a general wariness of another tech bubble, the quarter’s low deal activity is not surprising. The report states, “While disconcerting to the VC community, the decline in VC activity is likely to be a short-term trend given the amount of liquidity in the market around the globe. In fact, in the US, Q1’16 was one of the highest quarters for raising VC capital since the dot-com boom of 2000. These funds will likely be deployed over the coming quarters as VC investors renew their focus on finding disruptive or innovative companies in which to invest.”

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]]>http://venturebeat.com/2016/04/13/vcs-raised-billions-in-q1-even-as-they-made-fewest-investments-in-3-years/feed/01923478VCs raised billions in Q1 even as they made fewest investments in 3 yearsThe big stay big: 35 unicorns raised $12.6 billion in Q1 2016http://venturebeat.com/2016/04/10/the-big-stay-big-35-unicorns-raised-12-6-billion-in-q1-2016/
http://venturebeat.com/2016/04/10/the-big-stay-big-35-unicorns-raised-12-6-billion-in-q1-2016/#respondSun, 10 Apr 2016 15:03:33 +0000http://venturebeat.com/?p=1920687GUEST: In the first quarter of 2016, 35 unicorns raised a total of $12.6 billion from 36 funding events. While this is roughly the same amount that was raised in the first quarter of 2015, there were 58 investments in the previous period. This means that this year’s fundings were marked by larger deal sizes. Looking at the evolution of company valuations, […]
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GUEST:

In the first quarter of 2016, 35 unicorns raised a total of $12.6 billion from 36 funding events. While this is roughly the same amount that was raised in the first quarter of 2015, there were 58 investments in the previous period. This means that this year’s fundings were marked by larger deal sizes.

Looking at the evolution of company valuations, we saw a surprising 11 up-rounds, 4 unchanged valuations and only 4 down-rounds. The combined value progression is a staggeringly positive $26 billion, suggesting very good health – for the moment, anyway – for companies in the Unicorn Club.

Unicorn Club Funding 2015-2016

On the acquisition side, Gilt Groupe was acquired for a mere $250 million in cash from Hudson’s Bay, owner of Saks Fifth Avenue and other department store chains. Gilt’s online shopping platform pioneered the limited-time “flash sales” popular following the 2007-2008 recession and specializes in “insider prices” on high-end merchandise. The company has been suffering successive down-rounds since its $1 billion valuation five years ago.

Legendary, a pioneer in bringing private Wall Street equity and hedge fund investors to movie production, was bought by China’s Dalian Wanda Group for $3.5 billion, the largest acquisition of an American film production company by a Chinese firm. Wanda chairman Wang Jianlin, his country’s richest man, said he wants to expand and change the landscape of the global film industry.

California-based Jasper Technology also got acquired for $1.4 billion by Networking giant Cisco Systems. Jasper offers cloud-based control software to help companies connect machinery and equipment ranging from vending machines to farming equipment on the Internet. Cisco intends to add industrial-grade Wi-Fi and improve its ability to analyze the data.

Alibaba secured a $3 billion loan to finance more acquisitions and investments. The company had previously acquired Youku Tudou, a Chinese Video site, and taken stakes in Groupon, Snapdeal, Smapchat and PayTM. Media and India seem to be the two major focuses of Alibaba.

Alibaba-backed logistics firm Cainiao raiseed $1.54 billion at a reported $7.7 billion valuation. The firm is only 3 years old and was created to become a UPS-like backbone to deliver throughout China and other markets while leveraging big data to increase efficiency.

]]>http://venturebeat.com/2016/04/10/the-big-stay-big-35-unicorns-raised-12-6-billion-in-q1-2016/feed/01920687The big stay big: 35 unicorns raised $12.6 billion in Q1 2016What downturn? 11 companies became unicorns in Q1http://venturebeat.com/2016/04/09/what-downturn-11-companies-became-unicorns-in-q1/
http://venturebeat.com/2016/04/09/what-downturn-11-companies-became-unicorns-in-q1/#respondSat, 09 Apr 2016 17:18:21 +0000http://venturebeat.com/?p=1920159With no IPOs taking place in the first quarter of 2016, much attention is now focused on unicorns. Will they be able to maintain their billion dollar valuations, or will they would be picked off one at a time, succumbing to valuation markdowns and volatile public markets? Even with a healthy resetting of many tech company valuations underway, eleven firms attained unicorn status […]
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Even with a healthy resetting of many tech company valuations underway, eleven firms attained unicorn status in Q1 and had a combined worth of more than $21 billion, according to VB Profiles. The incoming unicorns are diverse, ranging from Anaplan,an enterprise business platform which may be eyeing an IPO, to Dada, a Chinese mobile application company that focuses on providing last mile logistics services, to Africa’s first unicorn, the Africa Internet Group, which runs Jumia, the continent’s largest ecommerce company.

Of note is the companies’ Funding To Valuation index, which is calculated by dividing their worth by the amount of funding prior to their unicorn valuation. This can help gauge how much of a company’s unicorn value is genuine as opposed to being “pumped up” by late stage funding. (Disclosure: VB Profiles is a cooperative effort between VentureBeat and Spoke Intelligence.)

Source: VB Profiles

These new unicorns, backed by fresh capital and strong internal rates of return, join the ranks of more than 200 other companies which VB Profiles estimated were backed by $175 billion in funding and whose combined values topped $1.3 trillion at the end of 2015.

]]>http://venturebeat.com/2016/04/09/what-downturn-11-companies-became-unicorns-in-q1/feed/01920159What downturn? 11 companies became unicorns in Q1Armageddon will have to wait: The market for unicorns is not falling aparthttp://venturebeat.com/2016/04/09/armageddon-will-have-to-wait-the-market-for-unicorns-is-not-falling-apart/
http://venturebeat.com/2016/04/09/armageddon-will-have-to-wait-the-market-for-unicorns-is-not-falling-apart/#respondSat, 09 Apr 2016 13:05:39 +0000https://venturebeat.com/?p=1919647GUEST: Fidelity Investments last week again marked down the valuations of some of the highest-flying unicorns in its portfolio. Not surprisingly, the front-page news stoked the current narrative that the market for late-stage venture-backed companies is falling apart. A look at two different sets of numbers tells an entirely different story. More companies rising than falling […]
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GUEST:

Fidelity Investments last week again marked down the valuations of some of the highest-flying unicorns in its portfolio. Not surprisingly, the front-page news stoked the current narrative that the market for late-stage venture-backed companies is falling apart.

A look at two different sets of numbers tells an entirely different story.

More companies rising than falling

First, based on Stock-Watch data from The Wall Street Journal on Fair Market Value reports of public funds like Fidelity, the internal rate of return (IRR) for these investments in companies on this list – primarily unicorns – is a very respectable 17.5%.

How do we arrive at the 17.5%?

The Journal’s data shows that 30% of these companies have a fair market value below the initial investment cost of the respective investors. The average write-down from the initial investment in this group is 25%. At the same time, 70% of companies on the Journal’s list are above the initial investment cost. The average increase in this group is 81%.

So as of March 31, 2016, the total performance of these investments is 1.4x the initial cost, and they yield a 17.5% annualized rate of return based on the reported initial investment date.

What investor wouldn’t be interested in that kind of performance?

For perspective, it’s important to note that a 30% write-down rate (based on the number of companies) is actually within the historic average. A 25% markdown (based on cost) is actually less than expected. In reality, both of these numbers confirm the current market is moving along its historic average; we see a regression to the mean, not a disintegration of the market.

Capital is not drying up

The second misperception is that capital has stopped flowing to late-stage venture capital companies. With no IPOs in the first quarter, the conventional wisdom is that unicorns may stumble without much-needed funding during a critical point in their development.

The numbers don’t bear that out either.

In fact, capital inflows in “mega rounds” – those financings of $100 million or more – were at an all-time high in the first quarter of 2016. Early data shows that in Q1 2016, about $8.8 billion was invested in these mega rounds across 23 companies. That’s up from $6 billion in 21 companies in Q4 2015.

This increase represents an annualized investment rate of $35 billion for 2016, up from $26 billion in 2015 and $16.7 billion in 2014. Clearly, there is not only a quarter-by-quarter improvement but also a continuation of a longer-term upward trend in capital deployed in late-stage, VC-backed companies.

Taken together, all of these data points tell the big picture about the health of the market for late-stage, venture-backed companies. It’s a solid market, with all of the ups and downs you’d expect in active capital markets.

More visibility

So why is the market so unnerved?

One reason is that until recently, mutual fund companies like Fidelity didn’t report valuation markdowns. They didn’t have enough exposure in the asset class to trigger regulatory filings. Even when there was a markdown, very few were looking for those reports. Today, the information is readily available and easily reported.

Another reason for the apprehension is that our expectations are out of whack. Over the past six or seven years, this asset class has experienced phenomenal growth. In 2009, there was only one unicorn, and it was called Facebook.

Today, depending on how you count, there are about 150 unicorns, and many more former unicorns have graduated to the public markets. Some have even become deca-unicorns, meaning that they are worth tens of billions of dollars.

The spectacular appreciation in valuations has conditioned the market to believe shares in this asset class only move up and to the right at a very sharp angle.

A normal market

As the froth comes out of the market, it’s natural to ask how big of an adjustment there might be. The dot.com crash still haunts everyone. The lingering fear is that the same thing will happen to unicorns.

In reality, this asset-class is here to stay. A breather in the market is good for everyone in the innovation economy.

In psychology, there’s a well-known phenomenon known as “confirmation bias.” It’s the tendency for people to actively seek out and assign more importance to evidence that confirms their hypothesis and ignore or underweight evidence to the contrary. That bias often leads to statistical errors and errors of judgment.

As someone who has studied physics and makes a living analyzing facts, I don’t think the most important numbers about this market lie. Instead, I suspect a little confirmation bias may be hard at work.

Sven Weber is a Managing Director of SharesPost’s SEC-registered investment advisor, SharesPost Investments Management, LLC. He is responsible for the management of the SharesPost investment vehicles. Sven is also the President and a Trustee of the SharesPost 100 Fund.

]]>http://venturebeat.com/2016/04/09/armageddon-will-have-to-wait-the-market-for-unicorns-is-not-falling-apart/feed/01919647Armageddon will have to wait: The market for unicorns is not falling apartIPO window slams shut on 22 tech companies seeking just $1.5 billionhttp://venturebeat.com/2016/04/03/ipo-window-slams-shut-on-22-tech-companies-seeking-just-1-5-billion/
http://venturebeat.com/2016/04/03/ipo-window-slams-shut-on-22-tech-companies-seeking-just-1-5-billion/#respondSun, 03 Apr 2016 14:44:57 +0000http://venturebeat.com/?p=1913481ANALYSIS: When it comes to going public, sometimes discretion is the better part of valor. The first quarter of 2016 saw no technology IPOs on U.S. markets, according to a report released last week by research firm Dealogic. The last time this was happened was seven years ago, in the months following the collapse of Lehman […]
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ANALYSIS:

When it comes to going public, sometimes discretion is the better part of valor.

The first quarter of 2016 saw no technology IPOs on U.S. markets, according to a report released last week by research firm Dealogic. The last time this was happened was seven years ago, in the months following the collapse of Lehman Brothers as the Great Recession was getting underway.

This time it’s different. During the first three months of the year, the U.S. stock markets were marked by overall volatility. The shares of many tech stocks – Facebook, Amazon, Google and others – took a sharp dive in early February before rebounding during the rest of the quarter.

In the face of this tumult, 22 tech companies filed to go public, but look to be stranded in registration waiting for markets to improve, or to at least stabilize, so they can raise needed capital. If conditions don’t improve soon, then some of these companies likely will forego the public markets and pursue their ambitions for growth by other means. However, for those firms whose investors are demanding a return now, they will have little choice but to groom themselves for acquisition. And given that their likely acquirers are themselves subject to the same market turmoil, that route is far from assured.

Meanwhile, some of the brightest private companies, unicorns like security-focused Okta, enterprise software provider AppDynamics and fintech upstart SoFi are still on the sidelines – for now.

According to VB Profiles, the stranded outfits represent a diverse range of technologies from biotech to cleantech to nanotechnology. Combined, these 22 firms – many of them small outfits, with modest amounts of invested capital – were seeking to raise about $1.5 billion based on their disclosed offer amounts.

(Disclosure: VB Profiles is a cooperative effort between VentureBeat and Spoke Intelligence.)

]]>http://venturebeat.com/2016/04/03/ipo-window-slams-shut-on-22-tech-companies-seeking-just-1-5-billion/feed/01913481IPO window slams shut on 22 tech companies seeking just $1.5 billionNew unicorns will rise from the ashes of 2016’s funding downturnhttp://venturebeat.com/2016/03/26/new-unicorns-will-rise-from-the-ashes-of-2016s-funding-downturn/
http://venturebeat.com/2016/03/26/new-unicorns-will-rise-from-the-ashes-of-2016s-funding-downturn/#respondSat, 26 Mar 2016 15:13:42 +0000http://venturebeat.com/?p=1901213ANALYSIS: In what now looks like a halcyon afternoon back in early October, I was moderating a panel of entrepreneurs and venture investors on the topic of how to raise series A funding. Very quickly, the conversation ran away from me. Instead of talking about which metrics and milestones would most likely lead to successful fundraising, […]
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ANALYSIS:

In what now looks like a halcyon afternoon back in early October, I was moderating a panel of entrepreneurs and venture investors on the topic of how to raise series A funding. Very quickly, the conversation ran away from me. Instead of talking about which metrics and milestones would most likely lead to successful fundraising, I found myself listening to a conversation about how to pursue additional rounds of angel and seed funding. Some of the audience chimed in to suggest that with so much private capital available, there were benefits to delaying a series A round. As the panelists prattled on, my stomach sank.

What I was hearing struck me as blasphemous. In my view of company formation, the best startups built themselves with rigorous execution: Get an idea, bootstrap a proof of concept, build a prototype, maybe even launch a commercial product. To secure that initial raise, founders would commit to concrete, measurable goals, which, when reached, would propel them to a series A. And then it would be the same pattern for successive investment rounds: Raise money to accomplish clearly defined objectives, achieve them, and then repeat and repeat until the company was profitable and ready for an IPO or sale. If the objectives were not attained, then the startup would most likely be shuttered.

What a difference six months makes. Just as the public market slide for tech stocks triggered a tightening in the funding environment for existing startups and helped subject some high-flying companies to markdown valuations – CloudFlare, Taboola and Twilio, for starters, there’s also been a negative trickle-down effect on the youngest of companies. The torrent of venture money seemingly available to nascent, early stage companies may be slowing to, well, a trickle.

Above: Aileen Lee, Cowboy Ventures

Despite the obvious pain for the affected companies, this resetting of the VC-entrepreneur ecosystem could be a good thing. Over the past couple months, several venture investors with whom I spoke saw evidence of a silver lining.

“Some of the best companies get started during difficult years in our economy,” said Aileen Lee, founder and partner at Cowboy Ventures. “Later this year, or in 2017, will be a really good time to start a company.”

Lee described how challenging times can improve entrepreneur quality and their company’s culture. Teams that come together in trying circumstances often tend to be creative and geared toward execution. “I’m optimistic from that perspective,” Lee said.

Joe Horowitz, managing general partner at Icon Ventures, said, “We’re already seeing a demonstrative shift in entrepreneurs from optimizing pricing towards valuing the quality of the investors they want to work with.” Horowitz explained that very often “those companies built with enduring value were started during more challenging times, when capital was expensive, and [as a consequence] use it accordingly.”

Above: Joe Horowitz, Icon Ventures

In a recent guest post for VentureBeat (2016: The year VC investors return to capital efficiency), Horowitz described how Icon made five investments at the end of 2008, during what was for many startups a nuclear winter — the depths of the financial crisis. “All five businesses turned out to be successful companies with strong exits,” Horowitz wrote. Among those investments was Palo Alto Networks, which went public in 2012 with $65 million of invested capital (after four financings) and today is worth more than $13 billion.

Lee pointed to Uber and Airbnb as examples of solid companies founded during the most recent downturn. An examination of notable companies with birth years 2008 and 2009 provides additional evidence. According to VB Profiles, 43 unicorns were created during the recessionary mess, among them Airbnb and Uber. (Disclosure: VB Profiles is a cooperative effort between VentureBeat and Spoke Intelligence.)

Lee explained that, since their founding, both companies have grown at an accelerated pace as investment money became easier to obtain. “We live in the age of Uber and Airbnb, two incredibly disruptive companies that have benefitted from the enormous amount of capital available.”

Thus, even while it’s easy to welcome a return to “traditional” venture investment rounds with valuations that make sense, there’s always a twist to the logic, some exceptions that make the rule. ““The whole narrative is built on exceptions and there are so few successes,” Lee said, cautioning me against a conclusion that only trying times birth great businesses. “Every successful company is by definition an outlier.”

Even as many venture capitalists urge fiscal caution on their portfolio companies as they help them manage through the current downturn, some will be looking to form solid partnerships with a new set of entrepreneurs. These are the company founders who are undaunted by the current climate and bent on rigorous execution – not on raising multiple seed rounds. And it’s the relationships between them and their investors that lie at the heart of value creation, and which, over time — and with prudent doses of capital — will help startups grow billion dollar horns.

]]>http://venturebeat.com/2016/03/26/new-unicorns-will-rise-from-the-ashes-of-2016s-funding-downturn/feed/01901213New unicorns will rise from the ashes of 2016’s funding downturnUnicorns aside, it’s a good time to start a businesshttp://venturebeat.com/2016/03/12/unicorns-aside-its-a-good-time-to-start-a-business/
http://venturebeat.com/2016/03/12/unicorns-aside-its-a-good-time-to-start-a-business/#respondSat, 12 Mar 2016 17:09:17 +0000http://venturebeat.com/?p=1894604GUEST: There’s been a healthy amount of chatter lately from analysts and tech writers that we are approaching a meltdown in startup financing. Unicorns, those startups valued at $1 billion or higher, are being downgraded at a rapid clip. The most recent victim is Flipkart, an Indian e-commerce firm devalued last month from $15.2 billion to […]
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GUEST:

There’s been a healthy amount of chatter lately from analysts and tech writers that we are approaching a meltdown in startup financing. Unicorns, those startups valued at $1 billion or higher, are being downgraded at a rapid clip. The most recent victim is Flipkart, an Indian e-commerce firm devalued last month from $15.2 billion to $11 billion. Another unicorn, UK-based Powa Technologies, was once valued at $2.7 billion but went bankrupt in February. Several other well-known unicorns that have experienced valuation cuts in recent months include Palantir, Dropbox, Snapchat, Jawbone, and Zenefits. This is disastrous not only for the companies but also for the limited partners of the VC firms who are seeing their investments devalued by 30% or more overnight.

But what’s going on in the market right now is not a bubble about to burst as many have suggested; it’s a logical multiples compression. Major tech companies, including Workday, LinkedIn, and Twitter have all lost considerable market share in the past year, igniting investor fears. While the stock market is subject to global and national events — predominantly the oil crisis, Syria, and China’s recession — VCs are taking note. The smart ones are looking at everything they hold more closely and lowering the multiples they use for valuation to lower the risk.

This is not cause for fear and gloom. To the contrary, this correction is a healthy turn of events for the SaaS marketplace. When SaaS began to pick up steam about 10 years ago, there was heady excitement around building great companies that would change the software industry for the better. SaaS was a revolution: It was going to deliver customers much faster ROI and measurable business benefits. Lately, it seems startups have lost sight of those lofty goals. Many founders are focused too much on chasing money and getting to the next funding round; VCs have been going along with this game wholeheartedly. Currently, there are 153 unicorns at a combined valuation of $535 billion, according to CB Insights.

In a recent meeting I had with a VC firm on Sand Hill Road, one of the partners shared with me an all-too-common story about a meeting he had with a startup. The company had modest revenues (in the mid-six-figures) yet was clearly seeking to be the next unicorn with a billion-dollar valuation. The VC turned them down, offering a $600 million valuation instead. The startup founders walked. Really?

In this market, startups should be expecting more realistic multiples, not the 40X (and higher) that some companies have previously been awarded. Just as IPOs are on a downward trend, it’s reasonable to predict that there will be many more unicorn failings and far fewer new unicorns born in the coming months. Something’s got to give.

First and foremost, startups should focus more of their efforts on building value and less on fundraising. Over the last few years, valuations have become disconnected from the business. It’s almost as if founders are running two different organizations: the business that is developing products and services and (hopefully) serving customers, and the business that is focused on constantly raising money. That strategy backfires when a company doesn’t grow revenues and customers as fast as predicted by those huge multiples, causing the devaluations and down rounds. The ultimate disaster is when the company’s churn and burn fundraising cycle stops short once investors finally see the light and go away. Before long, the company’s just another page in startup history.

There’s an answer to all this. Get back to the basics, beginning with sensible metrics. Value unit economics (with the customer as the unit) and funnel metrics. Know your conversion rates, average sale prices, churn rates, cost to acquire, and other core customer economics. These numbers will help you accurately predict revenues and a customer’s lifetime value. Eyeballs on a website are a shallow measure of startup financials. Too many young companies are asking for money based on irrelevant metrics. The founders who are good at fundraising but bad at building a healthy business are in an unpopular spotlight right now.

It’s not over for SaaS

The good news is, the VC funding well hasn’t dried up for financially sound, well-run companies. Further, well-funded and sound companies will gain an advantage. They have fewer competitors and face less of a threat that a fresh unicorn will make a big wave in their market.

As fundraising gets tougher and as companies begin focusing more on their unit economics and building a healthy business, the SaaS sector will benefit. I’d prefer to not think of SaaS as a bursting bubble but as an overgrown rose bush that needs some pruning in order to stage it for the next phase of growth. Through more sound business practices, the SaaS industry can shore up what has been accomplished already. There will be some failing startups because of it, but revenue will migrate to the healthier companies.

A fresh start

Now’s the time for startups to delve into their financial analyses with fact-based measures and establish a valuation that holds water. When you raise money, don’t burn through the cash expecting another round to occur. Instead, be smart with your money, spending it acquiring customers at a rate that makes sense with your customers’ lifetime value (LTV). This entails knowing your Cost to Acquire a Customer (CAC), because if you spend too much on acquisition costs as a percentage of LTV, you’re bound to run into trouble sooner rather than later.

Keep a close eye on your burn rate as you consider expanding staff or benefits. Finally, reconsider those dreams of the IPO. Going public is viable if your primary goal is to achieve an exit and move on or if you need to raise a large round for R&D. Otherwise, consider the many (and there are many) benefits of staying private.

There’s far less pressure on startup execs when the valuation is modest and fundraising is not core to survival. You can spend your time doing what entrepreneurs love: finding a market niche, generating new ideas, improving products, and building a culture where people love coming to work every day because it’s meaningful and fun. By turning away from the monopoly money and back toward helping customers succeed, life in a startup can be more stable and vastly more rewarding.

Tim Goetz is CEO and cofounder of Aplos and cofounder of San Joaquin Capital, a venture capital firm based in California’s Central Valley.

]]>http://venturebeat.com/2016/03/12/unicorns-aside-its-a-good-time-to-start-a-business/feed/01894604Unicorns aside, it’s a good time to start a business5 new unicorns emerge in Januaryhttp://venturebeat.com/2016/02/09/5-new-unicorns-emerge-in-january/
http://venturebeat.com/2016/02/09/5-new-unicorns-emerge-in-january/#respondWed, 10 Feb 2016 00:00:13 +0000http://venturebeat.com/?p=1872589GUEST: This January, five global tech startups raised a total of $858 million to become the latest members of the Unicorn Club. The one making the biggest leap was Shanghai-based Dada ($1 billion valuation), which raised $300 million in Series D financing from DST Global, Sequoia Capital, and other sources. Dada, a sort of Uber for […]
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GUEST:

This January, five global tech startups raised a total of $858 million to become the latest members of the Unicorn Club.

The one making the biggest leap was Shanghai-based Dada ($1 billion valuation), which raised $300 million in Series D financing from DST Global, Sequoia Capital, and other sources. Dada, a sort of Uber for things, has an app that links delivery workers to local delivery jobs.

Global travel site Skyscanner ($1.6 billion valuation) raised $192 million in January, with Yahoo Japan adding to its stake and Artemis, Baillie Gifford, Vitruvian Partners, and the Malaysian government’s Khazanah Nasional Berhad fund coming on board. The company says 50 million travelers a month use its site to price-shop flights, car rentals, and hotels.

Indian e-commerce marketplace ShopClues ($1.1 billion valuation) picked up over $100 million in a Series E round led by the Singapore government’s GIC wealth fund. The four-year-old company expects to become, in the first half of next year, the first pure-play Indian e-commerce company to turn profitable.

Business planning platform Anaplan ($1.09 billion valuation) raised $90 million from investors led by Premji Invest and including Baillie Gifford, Founders Circle Capital, Harmony Partners, and earlier Anaplan investors. The company said it will use the money to fulfill increasing global demand for its cloud-based planning, modeling, and collaboration platform.

And Forescout Technologies ($1 billion valuation) joined the club with a mere $76 million in new financing led by Wellington Management. Forescout plans to use the money to expand operations and increase R&D efforts in its Internet of things cybersecurity specialty.

Meanwhile, Unicorn members Lyft and Jawbone got new cash infusions, and Legendary Pictures cashed out in a big way.

Legendary, a pioneer in bringing private Wall Street equity and hedge fund investors to movie production, was bought by China’s Dalian Wanda Group for $3.5 billion, the largest acquisition of an American film production company by a Chinese firm. Wanda chairman Wang Jianlin, his country’s richest man, said he wants to expand and change the landscape of the global film industry.

Three-city ridesharing firm Lyft got a $1 billion lift, half of it coming from General Motors, which said it’s forming an unprecedented partnership that could eventually lead to on-demand, self-driving cars. Before that, the companies plan to set up hubs where Lyft drivers can get discounted rentals of GM cars. Funding also came from Saudi Arabia’s Kingdom Holding Co. and others, bringing Lyft’s valuation to $5.5 billion.

Another San Francisco tech firm, Jawbone, went next door to the Kuwait Investment Authority, which led a $165 million mezzanine round to fund operations, growth, and new product development. Jawbone is known for its wearable technology, including ERA and Bluetooth headsets, the UP activity tracking system, JAMBOX wireless speakers, and NoiseAssassin noise cancelling technology.

Also in San Francisco, Sunrun closed on $25 million of senior secured credit facilities to support its largest-in-the-US home solar business. The five-year deal is with a syndicate of investors arranged by Investec and will let Sunrun add to its 20,000 installed systems, many of which it retains ownership of, either leasing them to homeowners or selling homeowners the electricity they produce.

And one-time Unicorn Gilt Groupe was acquired for $250 million in cash from Hudson’s Bay, owner of Saks Fifth Avenue and other department store chains. Gilt’s online shopping platform pioneered the limited-time “flash sales” popular following the 2007-2008 recession and specializes in “insider prices” on high-end merchandise. Hudson’s Bay plans to create Gilt “concept” stores in its Saks Off Fifth discount stores.

Philippe Cases is CEO of Spoke Software, where he focuses on building a Market Intelligence Platform dedicated to tracking innovation.

]]>http://venturebeat.com/2016/02/09/5-new-unicorns-emerge-in-january/feed/018725895 new unicorns emerge in JanuarySharing economy’s ‘billion-dollar club’ is going strong, but investor risk is highhttp://venturebeat.com/2016/02/07/sharing-economys-billion-dollar-club-is-going-strong-but-investor-risk-is-high/
http://venturebeat.com/2016/02/07/sharing-economys-billion-dollar-club-is-going-strong-but-investor-risk-is-high/#respondSun, 07 Feb 2016 18:00:41 +0000http://venturebeat.com/?p=1871307GUEST: There are now 24 billion-dollar companies in the sharing or collaborative economy. This is up from 13 in 2014, reflecting a jaw dropping 71% increase and about one new addition every month. The size of the sharing economy billion-dollar club has almost doubled every year since 2012. New additions in 2015 can be found across the collaborative economy landscape. Fintech […]
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GUEST:

There are now 24 billion-dollar companies in the sharing or collaborative economy. This is up from 13 in 2014, reflecting a jaw dropping 71% increase and about one new addition every month.

The size of the sharing economy billion-dollar club has almost doubled every year since 2012. New additions in 2015 can be found across the collaborative economy landscape. Fintech has seen four new additions (Prosper, Transferwise, Funding Curcle, and Jimubox), while transportation services saw three new companies (Yidao Yongche, BlablaCar, and Grab Taxi).

The aggregate valuation of all billion-dollar sharing economy companies is now $140 billion.Uber has the biggest market cap, with $51 billion; AirBnB is second with $25 billion in valuation, followed by Chinese company Didi Chuxing.

2015 saw three exits in the club: two acquisitions (Homeaway acquired by Expedia, and Yidao Yongche acquired by Chinese Conglomerate LeTV) and 1 IPO (Etsy). If we remove the six M&A and public companies from the list, the number left — the sharing economy unicorns — is now 18 compared to 10 in 2014. And all of them are very young — less than seven years old.

Funding for existing unicorns was extremely strong

Seven companies on the list were already unicorns in 2014. With the exception of Instacart, all raised significant amounts of funding in 2015, totaling $12.8 billion (comprising 80% of the funding raised by the billion-dollar club in 2015). The combined market cap of the unicorns increased 2.7x, which is very aggressive for a portfolio of companies that size.

The market cap of these seven existing unicorns now makes up more than 83% of the entire sharing economy billion-dollar club’s market cap.

This is in stark contrast with what happened in the public market in 2015

The sharing economy billion-dollar club is facing a few challenges, the most concerning of which is how public companies are performing in the stock market. In aggregate, sharing economy public companies lost 44% of their market cap in 2015 — down to $9.6 billion. This drop was due to the IPOs of two once high-flying unicorns, Etsy and Lending Club, which lost two-thirds of their values in less than a year.

It is not uncommon to see tech companies lose two-thirds of their value during the first year and rebound later. Facebook is the most well known example, where the company went down from $38 per share to $17 only to rebound two years later to $115. So the jury is still out for Etsy and Lending Club, and we will watch them carefully in 2016.

Fundraising was another problem the public companies faced last year. Compared to the $13 billion raised by the unicorns in the private market in 2015, public companies were only able to raise $274 million during the same period

Above: (Etsy 2014 valuation is IPO valuation in 4/2015)

Discrepancies between private and public companies create a financing risk

A major area of concern for the unicorns in 2016 is that the current public and M&A performance of their peers undermines the fundamentals of a very high priced unicorn round. Usually, investors want to buy significant holdings in a private transaction because they can’t build the same holding at a reasonable price after the IPO. With public companies such as Etsy or Lending Club trading below the level of their last private equity rounds, investors can now buy those companies at an attractive price in the public market, making it less appealing to invest in a private round of financing before the IPO.

Second, the protection mechanisms used by fund managers to get more shares in case of lower scenarios are based on IPO price. Most investors who invested in a company before an IPO are locked up for 12 to 18 months so if companies exit at a significant step up at the time of IPO but then falter, as they’ve been doing (with the exception of Trade Me), the protection isn’t working anymore.

With financing risks having increased that much, most venture capitalists don’t want to have a portfolio company that needs cash and has to go fundraising. So we can expect a strong push from them to reduce spending to last through a possible drought — or better yet, to get to cash flow break-even. M&As could also be an option to consider if there are no other viable medium term alternatives.

In the meantime, we will keep watching existing public companies as well as the newest IPOs to see if the pattern we have seen in 2015 continues or if it was due to a misperception of the quality of sharing economy unicorns in the eyes of the public market.

Note: The billion-dollar club includes all companies public private or acquired through M&A that have been valued at one point more than $1 billion. Companies that are not valued over $1 billion anymore are kept on the list for the purposes of tracking. Members of the sharing economy billion-dollar club include Uber (CA), Didi Chuxing (China), AirBnB (CA), Lyft (CA), Ola (India), Lending Club (CA), and Wework, but also Etsy, Chegg, and Freelancer, whose market cap is less than $1 billion as of today.

Philippe Cases is CEO of Spoke Software, where he focuses on building a Market Intelligence Platform dedicated to tracking innovation.

]]>http://venturebeat.com/2016/02/07/sharing-economys-billion-dollar-club-is-going-strong-but-investor-risk-is-high/feed/01871307Sharing economy’s ‘billion-dollar club’ is going strong, but investor risk is high\n There are now 229 unicorn startups, with $175B in funding and $1.3T valuationhttp://venturebeat.com/2016/01/18/there-are-now-229-unicorn-startups-with-175b-in-funding-and-1-3b-valuation/
http://venturebeat.com/2016/01/18/there-are-now-229-unicorn-startups-with-175b-in-funding-and-1-3b-valuation/#respondMon, 18 Jan 2016 11:48:46 +0000http://venturebeat.com/?p=1864250Tales of the tech unicorn’s impending demise might be somewhat exaggerated. Spoke Intelligence and VB Profiles released a report recently that counted more than 208 of the mythical creatures, not to mention an additional 21 of the even more rarely spotted decacorns — startups with a valuation in excess of $10 billion. Almost half of them […]
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Ninety-eight of the unicorns are in the consumer space, especially in retail and the sharing (or “collaborative”) economy. Examples of unicorns in retail include the online marketplace Etsy and Alibaba, the massive Chinese commerce platform. In the collaborative economy, you’ll recognize names like Airbnb and Lyft. Another 112 unicorns can be found in enterprise technology infrastructure or vertical industries, such as fintech, healthtech, cleantech, and the current growth darling, IoT (Internet of Things).

“Unicorns are everywhere across the technology landscape,” said Spoke CEO Phillipe Cases.

Examples in IoT include Nest (acquired by Google), DJI (the drone company), and Jasper Technologies, which builds technology for self-driving cars.

Where the unicorns live

All told, 101 unicorns are headquartered in California. Another 23 are in New York, with a few handfuls scattered in states such as Massachusetts, Texas, and Illinois. Europe, as a whole, only has 13 — split between Germany, the UK, and a few other countries — which leaves China as the other heavyweight contender.

No fewer than 33 unicorns make their home in the most populous nation on the planet.

Interestingly, Europe ranks low both in terms of absolute number of unicorns and value creation. While the average global unicorn has returned 7X its invested capital in current valuation, Europe — which has not produced a single decacorn — sees returns of less than 4.5X.

Slowly, however, the world seems to be getting flatter in terms of investment and startups, just as it is with information and communication.

2015: the year of the unicorn

2015 was clearly a big year for the unicorn, with 81 new entrants joining the club, including one decacorn. It’s interesting to see that about 40 percent of the 2015 unicorns are based outside of the U.S. That number for all unicorns is around 30 percent … meaning that extremely high-value startups are becoming more global.

It’s worth noting that Spoke uses a fairly liberal definition of the term “unicorn,” counting any company valued at more than $1 billion and founded less than 25 years ago. That’s a long stretch of time, but 75 percent of those companies listed were founded in the last decade.

“It takes time to create a unicorn — the median length is six years — and even more time to exit,” Cases said. “Seventy-five percent of unicorns have not exited yet, and for the 52 who have, half got acquired and half went through an IPO.”

Spoke’s data showcases the ingredients it takes to become a unicorn (in addition to a great idea, stellar execution, and good timing). Not only does the average unicorn take six years to build, it requires $95 million in funding to reach that exalted status. Six years is fast by historical standards, but it’s hardly overnight.

It’s also worth throwing a few caveats into the discussion.

The 2015 investment environment featured ridiculously low interest rates, massive amounts of institutional capital, and investor-friendly exit preference agreements that made massive new funding rounds almost more like loans than venture capital. All of this contributed to sky-high valuations that, in some cases, are simply not supportable.

So it’s worth exercising a little caution when talking about tech unicorns, especially as 2016 valuations may be tightening up.

Above: Industries where the decacorns live

Image Credit: VB Profiles

On the other hand, dismissing them entirely isn’t wise, either. There is something fundamentally different happening here, something worth paying attention to: the rapid rise of mobile-fueled tech companies that are growing big more quickly than we’ve ever seen before.

One thing is clear, looking at the numbers: Big bets can offer bigger returns on investors’ capital.

While the unicorns, as a club, are already massive outliers in the investment world, having so far returned 7X on invested capital, decacorns have returned measurably more: 10X.

Who’s investing in unicorns?

This is where the world’s top investment firms — almost all U.S.-based — make their money. Top firms include Sequoia, with 37 unicorn and decacorn investments, Accel Partners, with 29, and Andreessen Horowitz, with 28.

“Investing at unicorn valuation is risky, as 30 percent of exits are done below the unicorn valuation marks,” Cases warned. “However, with a portfolio approach, returns are stellar at more than 78 percent per year.”

Late-stage investors, however, tend to be big, old, institutional capital firms with names like Goldman Sachs, T. Rowe Price, Wellington Management, and Insight Venture Partners. The ranks of investing companies are dominated by giants like Google, SoftBank, and Alibaba.

(Disclosure: VB Profiles is a cooperative effort between VentureBeat and Spoke Intelligence.)

]]>http://venturebeat.com/2016/01/18/there-are-now-229-unicorn-startups-with-175b-in-funding-and-1-3b-valuation/feed/01864250There are now 229 unicorn startups, with $175B in funding and $1.3T valuationSomewhere way, way under the rainbow: The 10 worst unicorns of 2015http://venturebeat.com/2015/12/24/somewhere-way-way-under-the-rainbow-the-10-worst-unicorns-of-2015/
http://venturebeat.com/2015/12/24/somewhere-way-way-under-the-rainbow-the-10-worst-unicorns-of-2015/#respondThu, 24 Dec 2015 09:45:19 +0000http://venturebeat.com/?p=1855673A venture capitalist may have pumped enough money into your company’s bank account to push it into the unicorn category, but that doesn’t guarantee success. Which is good news for people like me who are tasked with putting together a year-end list of the 10 worst unicorns of 2015. On the one hand, finding the […]
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A venture capitalist may have pumped enough money into your company’s bank account to push it into the unicorn category, but that doesn’t guarantee success.

Which is good news for people like me who are tasked with putting together a year-end list of the 10 worst unicorns of 2015.

On the one hand, finding the bad unicorns is easy enough because basically, every company is a unicorn as far as I can tell. So, odds are, some are just bound to suck.

Still, the job is difficult in part because there is an abundance of candidates. How does one begin to rank the suckiness of one unicorn against the suckiness of another? But also because “worst” (and “suck” for that matter) is inherently subjective.

Worst by financial performance? Biggest fall in valuation?

One thing is for sure: This job is bound to get easier as time goes by. According to TechCrunch, there are 156 unicorns, led by Uber with a $51 billion valuation. But since 2011, there have been only 21 exits for unicorns, either through IPOs or M&A deals.

The gap between those numbers represents the Valley of Unicorn Death, where we can expect more and more carcasses to pile up in the coming years.

Anyhoo, here are 10 unicorns that probably wished they could hit the Super Zapper Recharge button on 2015.

Fab: The real question with Fab seems to be whether you can count its suckiness in the calendar year of 2015, since it seems to have been falling apart in real-time-slow-motion for a while. But this was the year that the company – which previously raised $336 million in venture capital and was once valued at $1.7 billion — sold for $15 million. So, it goes in my 2015 bucket of unicorn blood.

Evernote: You know it’s been a bad year when people are publishing articles speculating whether your company will be the first dead unicorn. (And are debating whether Fab will beat you to the punch). But that’s what happens when you change CEOs and cut your workforce by 5 percent. Things start to look gloomy and the criticism piles up.

Good Technology: Once upon a time, Good raised $291 million in venture capital and was valued at $1.2 billion. Then it got bought by BlackBerry this year for $425 million. That raises two problems. First, that payday was far below its previous valuation. And second, it got bought by BlackBerry. There is a metaphor about being saved by a drowning man that I’m too lazy to remember here.

LivingSocial: To answer your first question: Yes, it still exists. The company has raised $935 million in VC and was once worth $1.51 billion. This year, the company fired 200 employees after axing 400 in 2014. The layoffs last year were supposed to be part of a strategic realignment. Which doesn’t look like it’s going so hot.

Pure Storage: The company went public this year at a market capitalization of $3.1 billion. Yeah! But the enterprise storage company raised at least $470 million in VC and had reached a value of $3.23 billion. Boo. And its stock price may end the year slightly below the IPO pricing. Lots of people are still bullish on this company longer term. But the IPO clearly didn’t deliver the desired shot of adrenaline or the payout expected by late-stage investors.

Gilt Groupe: First, the company cut 45 jobs in October, hoping to reach the land of profitability. Always a bad sign when a startup claims it’s trying to turn a profit. Then came word in December that the company was in talks to be bought for $250 million. When you were once valued at $1 billion and fall that far, it’s been a bad year for sure.

Dropbox: $600 million raised. $10.35 billion valuation. Coolio. But with the price of storage dropping fast, the company had looked to diversify its product lineup. Then it turned around and shuttered Mailbox, the email app it had bought for $100 million, and its own Carousel picture app. Now there is lots of thumbsucking about what the future holds for Dropbox, which wasn’t helped by rival Box’s lackluster IPO. Oh, speaking of which…

Box: Raised $558 million in VC, and was valued at $2.4 billion at one point. After delaying for a bit, Box finally went public earlier this year at a $1.67 billion valuation. The company had a decent first-day pop, but has since seen its stock fall, treading lately right around the initial $14 offering price. With Google and Microsoft punching harder into enterprise cloud services, it doesn’t seem like 2016 is going to get any easier for Box or Dropbox.

Theranos: Here’s one that’s purely subjective. But after years of riding a fluffy wave of PR and positive press to a $9 billion valuation for its blood-testing system, Theranos ran head-first into a series of investigative stories by the Wall Street Journal. The WSJ sought to debunk some of those claims. And the company, while mounting an all-out defense, also decided to stop using the tests in some cases. Meanwhile, federal regulators are sniffing around.

Square: I suspect this will likely get the most flak of any company on this list. Square went public in November at a $3.6 billion valuation. Going public was a victory of sorts. But there was a lot of debate about whether late-round investors got hosed or not. And then Square dropped its IPO price (not good) and had to distribute more stock to some investors (good for investors but bad for the company) but then the stock traded up on the first day (pretty good for everyone.) And the company’s stock has been basically flat since, a victory of sorts considering most tech IPOs tend to trade down quickly. But the fact remains: Square’s IPO is a warning that the public markets are not digging the private-market runaway valuations. And that puts Square on the list for me.

]]>http://venturebeat.com/2015/12/24/somewhere-way-way-under-the-rainbow-the-10-worst-unicorns-of-2015/feed/01855673Somewhere way, way under the rainbow: The 10 worst unicorns of 2015The impending Unicorn death marchhttp://venturebeat.com/2015/12/19/the-impending-unicorn-death-march/
http://venturebeat.com/2015/12/19/the-impending-unicorn-death-march/#respondSat, 19 Dec 2015 17:00:32 +0000http://venturebeat.com/?p=1852863GUEST: Unicorns, it turns out, were never driving economic evolution in the first place. The simple fact remains that every business in the world thrives or dies based on one simple premise: The money has to come from somewhere. In recent years, many tech startups have received hundreds of millions of dollars from enthusiastic investors. The […]
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GUEST:

Unicorns, it turns out, were never driving economic evolution in the first place. The simple fact remains that every business in the world thrives or dies based on one simple premise: The money has to come from somewhere.

In recent years, many tech startups have received hundreds of millions of dollars from enthusiastic investors. The mandate? Grow quickly and exit fast.

Participants in this “get rich by any means possible” phase grew so fixated on a big exit that many lost focus on the business itself.

By all indications, the unicorn era is at its terminus, and the biggest profiteers have already run off with the gold. The coming fallout will reveal the strong businesses for what they are and let the weak fall by the wayside.

The rude awakening

Fidelity’s recent Snapchat writedown is the most recent expression of a long-needed adjustment back to normal. VCs, institutional, and private equity investors are tightening their bankrolls as pre-IPO unicorns like Groupon stumble in the public market, exposing discrepancies in initial valuations.

Entrepreneurs looking to grow the top line and sprint towards a lucrative exit are in for a rude awakening. Yesterday’s investment conditions were never normal. They existed to benefit a few major shareholders at the expense of quality. Rather than being a bad thing, a market adjustment will benefit everyone looking to build — not conjure — a sustainable business.

Looking beyond luck

Success in business and investment always takes a dose of luck — on top of savvy, intelligence, and guts. In recent years, the equation has weighed too heavily towards luck.

Entrepreneurs and investors alike placed disproportionate faith in top-line growth. Now that the first wave of IPOs are tumbling back to Earth and big late-stage investors are reigning themselves in, the entire startup community must rethink what it means to succeed long term.

Venture capital flowed to poorly functioning companies for so long that entrepreneurs started to build businesses based on top-line growth rather than sustainable metrics like net profit. The ease of building an online business, coupled with an innovation-hungry younger generation and a large amount of money flowing into American venture firms, led to a modern tulip craze that is only now adjusting to reality.

Gambling is a business, but business is not gambling

A company built with a short-term mindset evolves into a completely different type of business (I would argue non-business) than a company built to last on its own merits.

Founders spend millions to sell and market their product, in some cases at the expense of product viability. Deep discounts and acquisitions might gain a company more users, but they don’t make its product more useful or establish trust with users. The only way to become profitable after massive expansion is to raise prices or offer value-added tiers of service, and that only works if the product you discounted in the first place is useful enough to warrant payment.

It’s easy to use Salesforce as the poster child for land and expand, but the CRM giant, as well as fellow favorite example Amazon, is anything but normal. First of all, both companies fulfilled a real need, Salesforce for better, faster, easier CRM, and Amazon for reliable online shopping with fast delivery. Users grew to love the software, and revenue followed, although company margins took a long time to catch up.

This should not be treated as a well-worn path to success. Top-line growth always tapers off eventually. When it does, all those customers you acquired by growing so quickly had better be generating recurring revenue.

Most companies will not become unicorns. Yet over time, the idea has percolated to the point of cliché, and players began to believe that success meant scale. The current move back to reality represents a long-needed financial adjustment, and a mind shift.

Patience is a Virtue … For a Reason

Every startup is born with the opportunity to succeed as a business. It takes grit and patience to grow responsibly.

Four key rules every business leader should follow:

Build a product that meets the needs of a loyal, growing customer base

Raise money not out of fear or greed, but because you have a specific plan to use it for the bottom line

Even if 2016 presents a startup crash to rival the dotcom boom, those entrepreneurs building real businesses will remain intact. The unicorn era may have obscured which companies were real and which were speculative, but when the tide rolls back, only the solid will survive and derive the return on investment they deserve.

]]>http://venturebeat.com/2015/12/19/the-impending-unicorn-death-march/feed/01852863The impending Unicorn death marchMake sure you know Square’s correct IPO valuation before you investhttp://venturebeat.com/2015/11/19/why-everyone-got-squares-ipo-valuation-wrong/
http://venturebeat.com/2015/11/19/why-everyone-got-squares-ipo-valuation-wrong/#respondThu, 19 Nov 2015 15:35:39 +0000http://venturebeat.com/?p=1841543GUEST: There is plenty to talk about with Square pricing its IPO down below the last raise. What we don’t understand is why everyone feels the need to make it sound worse than it is. Almost every single source has ignored employee options in their calculation of valuation, which deflates valuations in a dramatically inaccurate manner. […]
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GUEST:

There is plenty to talk about with Square pricing its IPO down below the last raise. What we don’t understand is why everyone feels the need to make it sound worse than it is. Almost every single source has ignored employee options in their calculation of valuation, which deflates valuations in a dramatically inaccurate manner.

There are two relevant ways of counting shares – outstanding, which is all shares currently existing; and fully-diluted, which is outstanding shares plus all options that would or could become shares.

A 35 percent drop from $6 billion to $3.9 billion is a patently wrong figure, but it has been published dozens of times. As The Information pointed out yesterday, this is an apples-to-oranges calculation, because the $3.9 billion figure excludes employee options, and the $6 billion includes all such dilution.

While that is a significant improvement, the share price itself is probably the best metric of an increase or decrease in value.

At $12, Square was pricing about 20 percent below the last private round (NOT 35 percent), and at $9, the final IPO price, about 40 percent below the last round.

But neither is important for new investors.

Most experts in the field – venture capitalists, funds, investment managers – adopt a fully-diluted share count. When a lower valuation is reported, of $2.7 billion, or $3 billion, or $3.9 billion, that leaves off one hundred and fifty million shares. Has this been happening every IPO?

Square is going public at $9 per share. This is a $4.3 billion valuation. Institutions are sophisticated enough to know this, but smaller advisers, wealth managers, or individual retail investors out there may not.

We felt the obligation to make this known. Otherwise someone buying at $10 thinking they’re getting a $3 billion valuation may be in for an unpleasant surprise very soon.

Side note: It looks like over the past two years, Square CEO Jack Dorsey has given 15 million of his own shares back to the company, for no money. Even at the reduced $9 per share price, that’s over one hundred million dollars. The purpose? Increasing the pool of equity available to employees. That’s a pretty classy move.

Sohail Prasad is the founder and CEO of Equidate, and Hari Raghavan is its VP of Operations. Equidate is a marketplace for secondary investments in late-stage startups. Sohail can be reached at sohail@equidateinc.com, and Hari can be reached at hari@equidateinc.com.

]]>http://venturebeat.com/2015/11/19/why-everyone-got-squares-ipo-valuation-wrong/feed/01841543Make sure you know Square’s correct IPO valuation before you invest\n Square’s IPO may already be causing every tech unicorn to weep rainbow-colored tearshttp://venturebeat.com/2015/11/19/squares-ipo-may-already-be-causing-every-tech-unicorn-to-weep-rainbow-colored-tears/
http://venturebeat.com/2015/11/19/squares-ipo-may-already-be-causing-every-tech-unicorn-to-weep-rainbow-colored-tears/#respondThu, 19 Nov 2015 12:03:08 +0000http://venturebeat.com/?p=1841481The news that Square is pricing its IPO below already modest expectations might be worrisome enough for the Valley of the Unicorns. But thanks to some analysis and a little digging by the Wall Street Journal, we have learned that it’s even worse for all those startups with bloated billion-dollar valuations than we first realized. […]
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Yesterday, Square said it had priced its IPO at $9, below an expected range of $11 to $13. Ouch.

The problem is that last year Square raised $150 million, with investors paying $15.46 per share. There’s a significant gap between $9 per share and $15.46 per share, for the math-impaired among you.

But wait, it gets worse.

That’s because, as part of that funding agreement, the investors were expecting a 20 percent return, which roughly means they expected the stock to be worth more than $18 per share.

So, double the actual offering price.

As a result, Square has to compensate these investors by giving them more stock, about $93 million worth, according to the WSJ.

Such agreements, in the VC world, are known as “ratchets.”

At this point, we’ve lost count of the number of so-called unicorns, and the term has become nonsensical, given that the planet now has an abundance of them.

But while it’s trendy to stay private as long as possible, at some point every VC-funded startup needs an exit, so investors can get a return (or not).

And with unicorns like Evernote stumbling, and publicly traded former unicorns like Groupon imploding in slow motion, it would seem that the stock markets are not super-duper excited about the herd of unicorns roaming the wilds of Silicon Valley, saddled with sky-high valuations.

That leaves mergers and acquisitions, but there’s only so many companies that the Google-Facebook-Apple-Microsoft axis can buy.

It may not yet be time to thin the herd. But don’t be surprised if the unicorns are looking a bit more nervous these days.

]]>http://venturebeat.com/2015/11/19/squares-ipo-may-already-be-causing-every-tech-unicorn-to-weep-rainbow-colored-tears/feed/01841481Square’s IPO may already be causing every tech unicorn to weep rainbow-colored tearsThe unicorn winter is coming — are you ready?http://venturebeat.com/2015/11/07/the-unicorn-winter-is-coming-are-you-ready/
http://venturebeat.com/2015/11/07/the-unicorn-winter-is-coming-are-you-ready/#respondSat, 07 Nov 2015 17:30:29 +0000http://venturebeat.com/?p=1834683GUEST: Here in New England, it’s getting chilly. The leaves are changing, the Patagonia vests have come out. Everyone’s mind has shifted towards the impending winter. And on the other side of the country, people are preparing for a different kind of winter — the unicorn winter. While everyone is having a great time picking on […]
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GUEST:

Here in New England, it’s getting chilly. The leaves are changing, the Patagonia vests have come out. Everyone’s mind has shifted towards the impending winter. And on the other side of the country, people are preparing for a different kind of winter — the unicorn winter.

While everyone is having a great time picking on unicorns, we need to stop pointing fingers and start focusing our energy on helping these companies not only survive, but thrive in the face of down rounds and a weak exit landscape. Afterall, the livelihoods of real people are at stake. At last count, PitchBook estimates that 91 unicorns employ around 57,000 people in the U.S.

As the great Rocky Balboa said, “It ain’t about how hard you’re hit, it’s about how you can get hit and keep moving forward. How much you can take and keep moving forward. Get up!” So here’s what I would do if I were the CEO or an employee of a unicorn right now.

To the CEO

Effectively free capital over the last few years may have encouraged you to stockpile cash and increase your burn. To reduce burn, I would first focus on sales where the predominant contributor to spend is headcount. I would quickly look to cut any sales reps who are fully ramped but haven’t made quota in the past two quarters. I would then peel back the onion one more layer and cut reps who have made quota, but who haven’t done so consistently.

The recent, all-out talent war is another major contributor to burn. It’s very difficult for companies to regain momentum after conducting major headcount reductions, so rather than cutting into bone to extend your runway, look to make comp adjustments that more accurately reflect historical norms. To give you a sense of how whacky things are, PayScale data indicates that compensation for business development reps (BDR) in San Francisco rose 18 percent in the last year alone. This dramatic jump has made the BDR pay model no longer viable in the Bay Area. To address this particular situation, I would seriously consider changing the comp structure such that total BDR compensation is geared more toward variability instead of focused on a fixed number. Or, you can look to build a BDR team outside of San Francisco as many of our portfolio companies have done. We’ve seen success in markets like Boston, Atlanta, Austin and Denver.

When it comes to engineering, I’m sure your board has been pushing you to drive competitive advantage and hire as many engineers as you can. But, in this new world you need to prioritize core engineering and then, if you have resources left over, dedicate a small team to R&D. Again, to those of you in San Francisco, I would also think long and hard about on-shoring your engineering team to a location where staff engineers don’t cost more than investment bankers.

For marketing, I would encourage you to evaluate every dollar that isn’t being used to drive a high conversion of leads into the middle part of the funnel. Things to chop include high-priced branding initiatives like roadside signage on Highway 101, big parties at trade shows, and your portfolio of 15 different SaaS apps “necessary” to run your business.

And, one last thought. Wouldn’t it be nice to harken back to the tight years of 2008-2010 and see folks crammed into a small office space working on doors propped up on cinder blocks rather than the birthright $2,000 standing desk? It’s not too late to get out of that 10-year lease you just signed — you know, the one that’s taking $5 million in restricted cash to hold? Giving up $1 million in cash to free up $4 million is worth it on any dimension.

To the Employees

Over the past few years, the market couldn’t have been any better for you. Unfortunately, the new normal going forward won’t look like this year; instead, it will more closely mirror the hiring landscapes of 2010 and 2011. Here’s a really basic framework to help you evaluate your near-term next move.

The truth of the matter is that, for many unicorn employees, this is going to be a rough winter. Statistically speaking, there’s a real risk of losing your job. As you contemplate your next move, it’s reasonable to expect transparency from your management team, especially given the current unstable environment. Transparency was in vogue when everything was up and to the right. And just because things are getting more complicated now doesn’t mean you shouldn’t hold your management team to those same standards. In fact, now more than ever you need to implore management to be completely transparent.

There will be a Darwinian process — that’s simply the nature of venture capital. But the fact remains that there have been amazing products and companies built over the past few years that provide real value to real customers. It would be a shame to see these companies and all of their associated benefits disappear. Many of us lived through the mid-2000 time period when people were calling venture a dead asset class. It would be a real travesty to see that prediction realized and, along with it, all this great innovation frozen because we can’t collectively rally now.

]]>http://venturebeat.com/2015/11/07/the-unicorn-winter-is-coming-are-you-ready/feed/01834683The unicorn winter is coming — are you ready?If 87 unicorns fell in the Valley, would they make a sound?http://venturebeat.com/2015/11/01/if-87-unicorns-fell-in-the-valley-would-they-make-a-sound/
http://venturebeat.com/2015/11/01/if-87-unicorns-fell-in-the-valley-would-they-make-a-sound/#respondSun, 01 Nov 2015 15:30:17 +0000http://venturebeat.com/?p=1829323GUEST: A lot of noise has been made about the inflated valuations of Aileen Lee’s unicorns and the amount of money they have raised. There are rumors that uber-unicorn Uber is now raising an additional $1 billion, in order to continue to fuel growth financed by losing a rumored two dollars for every dollar in revenue. […]
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GUEST:

A lot of noise has been made about the inflated valuations of Aileen Lee’s unicorns and the amount of money they have raised. There are rumors that uber-unicorn Uber is now raising an additional $1 billion, in order to continue to fuel growth financed by losing a rumored two dollars for every dollar in revenue. On the one hand, that seems irrational; but on the other hand, loss-fueled growth is how companies like Amazon became the behemoths they are today.

In the broader context of Silicon Valley technology companies, the unicorns in aggregate form barely a ripple in the fabric of space-time. According to CBInsights, there are 87 Unicorns in the United States, with a combined valuation of $312 billion. Cross-referenced with Crunchbase, those 87 have raised a cumulative $48 billion, with over half of that amount invested in the top 14 unicorns.

What if all of these unicorns vanished to Candy Mountain tomorrow? What would the ramifications be across the various ecosystems tied to unicorn mania? $48 billion is a lot of money to lose, even for the well-funded and diversified investors that have poured money into unicorn mezzanine rounds. However, consider that Fidelity, TPG, and T. Rowe Price alone manage over $6 trillion in assets, so even if they had invested half of what has been put into the unicorns, it would be less than half a percent of their assets, well within the volatility range of their much more stable asset classes. These asset managers are much more concerned about Chinese power consumption data than they are about unicorns returning to mythology.

The late stage unicorn investors, which traditionally invest in tech IPOs, have put anti-dilution and liquidation preferences into these private rounds, ensuring that they will very likely get their money back out at a minimum. The founders, early stage VCs and executives have sold portions of their stakes for cash in these rounds and in secondaries. VCs can complain about overinflation and Kind bars being handed out, but is it really out of altruism for the startups, or because they are shut out of the early stages by Angelist and micro-VCs and the later stages by hedge funds and public market investors?

If the asset managers aren’t biting their nails and wringing their hands about the future of these unicorns, what about the general technology sector? To put the $48 billion invested into unicorns into the technology sector context, consider that two months ago, during the Chinese market jitters, Google’s market capitalization plummeted $54 billion in a week. Google’s investor exposure is more similar to the dot com, with main street investors in the stock. The world did not end. Rent prices in San Francisco did not plummet. Kind Bar inventories at Whole Foods and Safeway did not explode. In the grand scheme of things, it’s just not that much money.

So who could potentially lose here? If investors, founders, and the general technology business isn’t impacted, who is? The employees of unicorn companies who were enticed to startups with multi-billion dollar valuations. There is a good chance many will get squeezed down as the inevitable “IPO is the new downround” public offerings happen when some unicorns fully tap out private markets. But how many people will that actually impact? Even if all the unicorns are forced to rightsize and lay off staff, they are still startups and likely employ fewer people in aggregate than the 33,000 employees HP just announced it will lay off.

There were 39 unicorns when Aileen Lee wrote her original article in 2013. There are now over 140 unicorns worldwide. Some unicorns have hit escape velocity. Others seem more like they are headed to the endangered species list once fundraising windows close and their business models are exposed. Either way, the large late stage investors who have put multiple bets on the roulette table will come out unscathed, so perhaps the unicorn angst is isolated to the Silicon Valley echo chamber.

Peter Yared is founder and CTO of Sapho and formerly CTO/CIO of CBS Interactive.

]]>http://venturebeat.com/2015/11/01/if-87-unicorns-fell-in-the-valley-would-they-make-a-sound/feed/01829323If 87 unicorns fell in the Valley, would they make a sound?Billion-dollar startups everywhere — but no billion-dollar entrepreneurs (yet)http://venturebeat.com/2015/05/13/billion-dollar-startups-everywhere-but-no-billion-dollar-entrepreneurs-yet/
http://venturebeat.com/2015/05/13/billion-dollar-startups-everywhere-but-no-billion-dollar-entrepreneurs-yet/#respondWed, 13 May 2015 21:00:10 +0000http://venturebeat.com/?p=1728196GUEST: Only when you've built a $100 million company should you think about how to build a $1 billion one. And I’m not talking funding-based valuations, I’m talking revenue-based valuations.
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Done? Good. Now: I have three issues I’m juggling with these days. One: even if things go well — say, an IPO — once you dig into the numbers, they’re exciting for the investors, not that exciting for the entrepreneurs. Sure, the entrepreneur made a company public, and that’s a huge life achievement that deserves major props. Hurrah.

But. Aaron Levie had 3.4 percent of Box by that time after 8.5 years of hard work (you can see a nice infographic on that here from my friends at EquityZen). Renaud Laplanche had 4.7 percent of LendersClub at that time after around 7 years of hard work (another nice EquityZen infographic here). Chad Dickerson had 2.1 percent of Etsy by that time after 10 years of hard work (another nice EquityZen infographic here). In two cases, the CEO at the time of the IPO was the founder of the company, in one case not. Now, this is the point where the traditional narrative says: “Better to have 1 percent of a billion-dollar company than 100 percent of a zero dollar company.” But that’s actually a false choice.

The real choice is: Is it better to have 1 percent of a billion-dollar company or 10 percent of a $100 million company? Yep, if you think about it in these terms, it’s actually the same thing. With a bunch of major (and when I say ‘major’, I mean *MAJOR*) differences: the amount of capital you need to get there and, more importantly, the time you need to get there — not to mention the likeliness of the exit. Because just by factoring in time, the choice becomes much more interesting: Is it better to have 1 percent of a billion-dollar company in 10 years or 10 percent of a 100 million company in 5 years? If you ask me, I’d go for the second one any day of the week, because in the time I’d need to get an IPO I could maybe get 2 exits, and maybe not ‘just’ at $100 million, but at $150 million or $200 million.

I hear this all the time from early stage founders: I ask how much they’re raising; they answer, “(insert ridiculous amount of money here).” So I ask them why; they answer, “(insert casual reason disconnected from reality).” These are the same guys who approach investors saying, “With your money and your expertise, I can have a real advantage over the competitors.” Wrong, my friend. Investors (particularly nowadays) don’t want companies to depend on them to win. They want to bet on winning companies that can grow even faster with their involvement. After all, *you* are the one running the show. If they wanted a high level of involvement, they’d be running their own.

The best way to approach investors is, “Hey! I did ‘X’ and ‘Y’ last year with ‘W’ money raised. This year I’m on track to do 400 percent growth, but with your money and involvement I can target 800 percent growth instead. Interested?” Answer: Hell, yeah! And do yourself a favor. Do *not* raise a monster round if you don’t know how to deploy it to deliver on that growth. Do the math.

A friend of mine, about two weeks ago, was offered a term sheet for $9 million cash; she has a company that’s doing little more than $1 million revenue annualized. She turned it down and accepted a term sheet offering a third of that. Why? “I wouldn’t know how to spend it,” she said. Smart woman.

Because, you see, what lots of founders don’t realize is that they are the ones with tons to loose, not the investors. Investors know that 7 out of 10 companies will just plain fail. If they gave you $10 million and things didn’t really work out, how much effort do you think they’d need to pick up the phone and check with one of the big companies of the Valley, desperate for talent, to see who’s willing to hire your team of 10 people the week after? Last time I checked, for M&A purposes, a developer was quoted around $1 million (roughly five years of salary). They get their money back, you and your team get a nicely paid job. Could have been worse, sure; but could have been better also.

Now, I don’t think that VCs are evil. They’re just following the model they need in order to make the economics of their fund work. They need a Unicorn, period. Several, actually. Everything else is irrelevant. Jason Lemkin of Storm Ventures wrote about it here just over a week ago. And VCs are oh-so-good at selling themselves to you. So much, in fact, that nowadays everyone seems to be wanting to raise dozens of millions in funding to aim at reaching the Unicorn status. Everyone’s obsessed with this. But, hey, you are not them. Your economics are substantially different from theirs. Choose wisely. But if you go for that, be aware of what you’re signing up for.

Also (and this is my third point): The world has changed in the last few years. Not many realize it, but in a world where building technology is super cheap and acquisition’s channels are super efficient and entrepreneurs are starting more companies than ever, venture capital as an industry is kind of struggling right now. Not with the capital (that’s commoditized as well), but with how the industry works. The deal flow is becoming the issue: Either you cannot find/access interesting enough companies (if you’re not Tier1 or Tier2), or you have too many and so you’re churning through too many of them, and since you cannot invest efficiently, you’re missing out.

Only a very few players are keeping up with the pace. 500 Startups (over 300 investments last year), Y Combinator (around 200 investments last year) and AngelList (104 million raised online in 2014) are the ones that are investing at scale. The others? According to Mattermark, the most active VC last year made 20 investments. Twenty. I could go as far as saying that venture capital as an industry is losing relevance and becoming a “boutique industry.”

After all, that’s what happens when you invest in only 0.1-0.5 percent of the companies you see. Of course, it’s not reasonable to think that 50 percent of the companies an investor considers would be a good fit, but 5 percent does seem reasonable. Still, that’s 10-50 times the current rate.

The limiting factor is not the *quality* of the companies we’re talking about, since lots of them have good/great growth and are generating interesting revenue. Nor is it a matter of capital availability, since every industry report says we’re now seeing the highest availability ever. The bottleneck is in the *quantity* of companies that VCs can process and take a board seat on. That’s part of the reason why VCs are shifting toward bigger rounds at higher valuations. This is why, a few months ago, people were talking about how startups were getting trapped in a “Series A crunch”, where, after good seed funding, they weren’t finding investors willing to take on a Series A.

But I see this as being more of a problem for investors than for company founders Because the result of this macro-trend is that the good companies, the ones that deserve to exist because they are solving a real need for a real customer, don’t need VC money to survive anymore; it’s the other way around.

The good companies can get the funding they need more quickly by growing faster and/or by doing several smaller rounds and retaining more control and/or by leveraging crowdfunding campaigns and/or by opening a line of credit with a bank. They consider VCs to be a kind of cash-as-a-service entity, to be tapped into only when more efficient options are slower or not available. Lots of companies are already starting to go down that route. One example? Atlassian. It took its first venture round at $60 million revenue (Tom Tunguz has more here). If you ask me, it won’t be long before we see the first billion-dollar company that’s raised less than $10 million in funding (now, that’s a real Unicorn!).

What does this means for you as a founder? Easy: focus. To build a $1 billion company, you need to already have a $100 million company; and to build a $100 million company, you need to already have a $10 million company; and to have a $10 million company, you need to build something people want. So focus on building the $10 million company first, then when you’re there, think about the $100 million one. Only when you’ve built that $100 million one should you think about how to build the $1 billion company. And I’m not talking funding-based valuations, I’m talking revenue-based valuations, which is even more fun.

Oh, and don’t listen to people who say you shouldn’t worry about dilution. You should, a lot. Just do the math.

Armando Biondi is cofounder and COO of AdEspresso, a Saas Solution for Facebook Ads Optimization. He previously cofounded five other tech and non-tech companies. He’s also an angel investor in Mattermark and 25 more companies and part of the 500 Startups network.

]]>http://venturebeat.com/2015/05/13/billion-dollar-startups-everywhere-but-no-billion-dollar-entrepreneurs-yet/feed/01728196Billion-dollar startups everywhere — but no billion-dollar entrepreneurs (yet)Where the unicorns are: 64 of 102 startups valued above $1B are based in U.S.http://venturebeat.com/2015/05/11/where-the-unicorns-are-64-of-102-private-companies-valued-above-1b-are-based-in-u-s/
http://venturebeat.com/2015/05/11/where-the-unicorns-are-64-of-102-private-companies-valued-above-1b-are-based-in-u-s/#respondMon, 11 May 2015 11:36:13 +0000http://venturebeat.com/?p=1725779It's probably no surprise that the U.S. is the unicorns' native habitat, thanks to Silicon Valley, but that's not where the most valuable company is.
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While entrepreneurship may be spreading around the globe, the U.S. is still far and away the leader when it comes to generating fast-growing startups.

It’s probably no surprise that the U.S. appears to be the unicorns’ native habitat, thanks to Silicon Valley. But the gap is still quite notable.

After the 62 located in the U.S., there are 11 in China, 10 in Europe, and 6 in India.

For the moment, Xiaomi still tops this list as the most valuable private company at $46 billion. But with Uber reportedly on the hunt to raise more money at a $50 billion valuation, that ranking could change soon.

]]>http://venturebeat.com/2015/05/11/where-the-unicorns-are-64-of-102-private-companies-valued-above-1b-are-based-in-u-s/feed/01725779Where the unicorns are: 64 of 102 startups valued above $1B are based in U.S.Mobile Internet ‘unicorn’ companies now valued at $575B worldwidehttp://venturebeat.com/2015/05/06/mobile-internet-unicorn-companies-now-valued-at-575b-worldwide/
http://venturebeat.com/2015/05/06/mobile-internet-unicorn-companies-now-valued-at-575b-worldwide/#respondWed, 06 May 2015 19:19:52 +0000http://venturebeat.com/?p=1721066There are now 79 of these software companies valued at $1 billion or more by public or private investors.
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The market value of mobile Internet unicorns — software companies valued at $1 billion or more by public or private investors — hit $575 billion in the first quarter of 2015.

Digi-Capital believes there are now 79 mobile Internet unicorns, with 69 of them valued between $1 billion and $10 billion, nine valued between $10 billion and $100 billion, and one — Facebook — valued at $220 billion.

The sectors include: Facebook (38 percent of total value), followed by other social networking (17 percent), travel/transport (11 percent), and m-commerce (10 percent). Messaging, games, utilities, food and drink, music, lifestyle, and entertainment each delivered between 1 percent and 10 percent of value, Digi-Capital said.

Enterprise mobility, app store/distribution, tech, advertising, navigation, photo and video, and productivity combined were worth less than 2 percent of the total.

And unicorns, it turns out, tend to be born in the U.S.A.

“If you thought distribution by sector was uneven, hold on to your Stetson,” said Digi-Capital managing director Tim Merel in a statement. “American companies represented a massive three quarters of the value of mobile Internet unicorns globally, as well as a third of volume.”

Even without Facebook, Merel added, the U.S. produced a third of value and volume. China produced the second-highest number of unicorn companies (24 percent) and the second-highest market value (10 percent).

Digi-Capital said mobile Internet unicorns added $65 billion in shareholder value in the first 3 months of 2015, or $725 million dollars a day.

]]>http://venturebeat.com/2015/05/06/mobile-internet-unicorn-companies-now-valued-at-575b-worldwide/feed/01721066Mobile Internet ‘unicorn’ companies now valued at $575B worldwideTwilio raises $100M; is now worth over $1B (updated)http://venturebeat.com/2015/05/04/twilio-raises-100m-is-now-worth-over-1b-report-says/
http://venturebeat.com/2015/05/04/twilio-raises-100m-is-now-worth-over-1b-report-says/#respondTue, 05 May 2015 03:36:28 +0000http://venturebeat.com/?p=1718337Telecommunications enabler Twilio has raised a $100 million series E round that values the company at over $1 billion, according to a recent report.
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Telecommunications enabler Twilio has raised a $100 million series E round that values the company at over $1 billion, according to government filings.

The news was first reported in Forbes, citing research firm VC Experts, which uncovered a Delaware filing revealing the large round. VC Experts confirmed the round and provided us with the documents, which indicate a price of $11.31 per share for the series E. With 8.8 million series E shares authorized, that means the company has raised — or is about to raise — a few pennies short of $100 million.

According to the Forbes report, this more than doubles Twilio’s total capital raised: It had previously raised $103 million in four rounds, the most recent of which was a $70 million series D in June, 2013. The lead investors in that round were Bessemer Venture Partners, Draper Fisher Jurvetson, and Redpoint Ventures. The most recent round also reportedly doubles the company’s valuation, from $500 million, putting it in the “unicorn club” (a term for venture-backed companies worth more than $1 billion).

When we last spoke with Twilio chief executive Jeff Lawson, he told us that the company hit an annual run rate of $100 million in revenue in 2014, and was adding $1 million in annualized revenue every seven days. That’s a tricky figure, because run rate assumes current revenues will continue at the same pace for the next 12 months, but it’s a metric frequently used by private companies as an indication of momentum.

Twilio has built a suite of services used by developers to integrate telephone capabilities into their apps, from placing a call to sending text messages. As part of that suite of services, it operates an extensive telephony network of its own, in order to connect its customers’ apps to telephone networks all over the world. It added video calling services to that suite in March.

Updated May 5 with confirmation from the Delaware document filings.

]]>http://venturebeat.com/2015/05/04/twilio-raises-100m-is-now-worth-over-1b-report-says/feed/01718337Twilio raises $100M; is now worth over $1B (updated)Where are the text analytics unicorns?http://venturebeat.com/2015/05/03/where-are-the-text-analytics-unicorns/
http://venturebeat.com/2015/05/03/where-are-the-text-analytics-unicorns/#respondSun, 03 May 2015 18:00:01 +0000http://venturebeat.com/?p=1716503GUEST: Why haven’t we seen any text analytics providers, or companies whose solutions or services are text-analytics reliant, started since 2003 and valued at $1 billion or more?
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GUEST:

Customer-strategy maven Paul Greenberg made a thought-provoking remark to me back in 2013. Paul was puzzled — Why haven’t there been any billion-dollar text analytics startups?“Text analytics” is a term for software and business processes that apply natural language processing (NLP) to extract business insights from social, online, and enterprise text sources. The context: Paul and I were in a taxi to the airport following the 2013 Clarabridge Customer Connections conference.

Clarabridge is a text-analytics provider that specializes in customer experience management (CEM). CEM is an extremely beneficial approach to measuring and optimizing business-customer interactions, if you accept research such as Harvard Business Review’s 2014 study, Lessons from the Leading Edge of Customer Experience Management. Witness the outperform stats reported in tables such as the one to the right.

Authorities including “CX Transformist” Bruce Temkin will tell you that CEM is a must-do and that text analytics is essential to CEM (or should that be CXM?) done right. So will Clarabridge and rivals that include Attensity, InMoment, MaritzCX, Medallia, NetBase, newBrandAnalytics, NICE, SAS, Synthesio, and Verint. Each has text analytics capabilities, whether the company’s own or licensed from a third-party provider. Their text analytics extracts brands, product/service, and feature mentions and attributes, as well as customer sentiment, from social postings, survey responses, online reviews, and other “voice of the customer” sources.

So why haven’t we seen any software companies — text analytics providers, or companies whose solutions or services are text-analytics reliant — started since 2003 and valued at $1 billion or more? I’m applying Aileen Lee’s 2013 “unicorn” definition; there have been no text analytics unicorns, even counting, beyond Lee’s definition, non-U.S. based companies. Pivotal, whose tech suite includes the Greenplum analytical database system and Hadoop solutions, comes closest but really isn’t text-y enough to include. Autonomy, bought by HP in 2011 at an $11.7 billion valuation although subsequently seen as worth much less (HP wrote off $8.8 billion in 2012), was founded in 1996.

(Of the companies I named above, NICE and Verint are publicly traded with multibillion market valuations, based on broad product lines, and privately held SAS, founded in 1976, with over $3 billion in 2014 revenue, could go public valued at a respectable revenue multiple.)

It’s safe to say that whoever goes first — Clarabridge, NetBase, Medallia, or some other — a successful IPO, or additional funding at a $1 billion+ valuation — will prime the market for more to follow.

Why?

A Bright Future for Natural Language Processing

NLP and text analytics are central to high-performance solutions in fields that range from market research and marketing to politics and policy (which are governmental versions of MR and marketing), to national security and intelligence (which grapple with government’s dark side), and to life sciences and clinical medicine (ah! — a field that contributes something positive to life experience).

That’s quite a few, as you’d expect for what’s now a multibillion dollar market. (I estimated that sales attributable to text analytics crossed the annual $1 billion mark in 2011.) It’s an active domain The investments section of my recent Text Analytics 2015 article listed 19 funding/M&A events. Last year’s top-valued takeover was Verint’s purchase of customer-service solution vendor KANA. Only a minority of the $514 million purchase price can be attributed to KANA’s text analytics. The $90 million Attensity investment, while large, was likely for a high proportion of company ownership, based on a valuation far, far, far below the magic $1 billion mark.

Above: CEO Ingo Mierswa Serenades the RapidMiner Unicorn

The unicorn candidates I cited above focus on customer experience. In other domains — military/intelligence, financial services, life sciences — text analytics/solution companies to watch include Basis Technology*, Digimind, Digital Reasoning*, Lexalytics*, Linguamatics, and RapidMiner* (who get special plaudits for their sense of humor, viz the photo at right), although I wouldn’t rate them anywhere close to $1 billion in valuation. Companies with potential to grow rapidly include Decooda, Kanjoya, and Luminoso*. There are others in both categories, plus companies that are advancing at a slower pace. (Add the starred companies to my disclosures list.)

Where Are the Text Analytics Unicorns?

I’ve named lots of companies. Is market fragmentation — a pie sliced into too many pieces — to blame for the lack of breakaway winners? Possibly.

The availability of capable free, open source technologies — GATE, Python NLTK, R, StanfordNLP, and other packages — is surely a factor, but one that cuts both ways. Open source lowers market-entry barriers. Companies such as Attivio and Luminioso have exploited open source to rocket into the market.

Did the HP-Autonomy debacle dampen investor enthusiasm? No, I don’t think so. Even post write-down, the Autonomy portion of HP still values high.

Conclusion

In the end, the answer is a very basic one. Contrast the text analytics sector with unicorns that include Uber — Travis Kalanick’s company — and Airbnb, Evernote, Flipkart, Square, Pinterest, and their ilk. They play to mass markets — they’re a magic mix of revenue, data, platform, and pizazz — in ways that text analytics doesn’t. The tech companies on the unicorn list — Cloudera, MongoDB, Pivotal — provide or support essential infrastructure that covers a broad set of needs.

So slow and steady — text analytics — wins the race, right? No, not the valuation race. But it competes. Just give it a year: 2016, I predict. Meanwhile, let’s keep building great tech!

]]>http://venturebeat.com/2015/05/03/where-are-the-text-analytics-unicorns/feed/01716503Where are the text analytics unicorns?Marketing-tech unicorns show lower risk than their peershttp://venturebeat.com/2015/05/02/marketing-tech-unicorns-show-lower-risk-than-their-peers/
http://venturebeat.com/2015/05/02/marketing-tech-unicorns-show-lower-risk-than-their-peers/#respondSat, 02 May 2015 16:00:55 +0000http://venturebeat.com/?p=1715064GUEST: Marketing-tech unicorns have tended to rely on less funding to reach their $1 billion valuation and are doing better than their public counterparts after having reached the unicorn mark.
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GUEST:

We’ve been hearing a lot about unicorns since Aileen Lee’s seminal study on the topic appeared in November 2013. And over the last couple of months, many in the venture capital community have warned that the surge of private companies being valued at $1 billion could be a sign of a bubble.

First Round Capital partner Josh Kopelman, for example, kicked off a Twitter storm with questions on the effects of “private IPOs” — private companies pulling in huge late-stage funding rounds equivalent to what an IPO might bring them. And Benchmark general partner Bill Gurley warned the investment community that “not all these companies are IPO level candidates,” likening some unicorns to irresponsible teenagers. In the meantime, opportunistic venture capitalists like Glenn Solomon from GGVC have been advising CEOs on how to stay in the moment and leverage this burst of valuation while keeping cool heads.

While it’s still unclear amidst all this debate whether the surge in unicorns signals trouble or a tech renaissance, I’ve been interested in how the phenomenon is playing out amid marketing tech companies. Do mar-tech unicorns exist? And, if so, are they following the same concerning “private IPO” trajectory that we’re seeing in the larger tech community?

In a recent eBook built on top of the marketing-tech landscape, VBProfiles (a partnership between Spoke and VentureBeat) identified 29 marketing-tech companies (1.5 percent of the total landscape) belonging to the Billion Dollar Valuation Club, whether publicly traded or privately held. That total includes 12 unicorns — companies that have achieved a billion-dollar valuation while remaining private — for 0.66 percent of the total landscape.

But despite the incredible burst of innovation due to the emergence of the cloud in the marketing-tech landscape, the significant acceleration of companies we’ve seen joining the Billion Dollar Club in 2010-2015 is due to older companies founded in 1995-2004 finally catching up after having survived the two nuclear winters and materializing their valuation later in the cycle.

Furthermore, in the period of 1990 to 2010, the rate of marketing-tech companies reaching billion-dollar valuations remained steady at two companies a year, except during the nuclear winter of 2000-2002, when only one such company was created for the entire three years. This a sign that the venture capital market, from a funding standpoint, seems to be fairly healthy in selecting the same number of companies year over year.

Marketing-tech unicorns have tended to rely on less funding to reach their $1 billion valuation and are doing better than their public counterparts after having reached the unicorn mark, with a median valuation of $2.1 billion versus $1.8 billion for public companies.

So regardless of how much risk the larger unicorn community presents, it appears marketing-tech unicorns promise equal if not better stability and return for investors than their public company counterparts.

Whether the unicorn era is here to stay or is just a passing anomaly remains to be seen. Billion-dollar private deals exist because a combination of stars are aligned: There is an existing demand from financial investors who trade better protection and early access to deals with liquidity, and that’s combined with both a supply of companies whose CEOs prefer to delay their IPOs and secondary markets that provide early liquidity to private investors and employees.

Changes in the financial environment, such as interest rate hikes, will necessarily affect deal conditions over time. Experienced financial investors who invest in both private and public companies are usually the ones making those trade offs and will react accordingly, while CEOs may only decide to go the IPO route if the highly priced private deal terms are not favorable anymore. After all, we only saw half the number of IPOs in 2014 that we saw during the 1990-1996 time frame.

To date, everything seems to be business as usual for investments in the marketing-tech industry. Venture capital follows the traditional cycle of venture capital, and the emergence of unicorns is more a sign of current market conditions than irrational exuberance. However, history tells us that bubbles evolve from normal courses of business, so all of this may change in the coming years with the new vintage of startups created in 2010-2015 — especially if the market heats up even more.

Philippe Cases is CEO of Spoke Intelligence. He is also a venture capitalist and serves on the board of Venturebeat (as chairman) and Jaspersoft.

]]>http://venturebeat.com/2015/05/02/marketing-tech-unicorns-show-lower-risk-than-their-peers/feed/01715064Marketing-tech unicorns show lower risk than their peers29 martech unicorns: There are now almost 30 $1B+ marketing technology vendorshttp://venturebeat.com/2015/04/30/29-martech-unicorns-there-are-now-almost-30-1b-marketing-technology-vendors/
http://venturebeat.com/2015/04/30/29-martech-unicorns-there-are-now-almost-30-1b-marketing-technology-vendors/#respondThu, 30 Apr 2015 14:01:47 +0000http://venturebeat.com/?p=1714045Going public seems to be the exit of choice, but there are still eight private unicorns to tempt investors.
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There are now 29 billion-dollar-plus marketing technology companies, according to a new analysis by competitive intelligence vendor VBprofiles. (Disclosure: VB owns 30 percent of VBprofiles.com, which is a joint venture with Spoke Intelligence.)

Newest on the list? Domo and Slack.

“50 percent of the unicorns are between six and nine years old,” report author and Spoke Software CEO Philippe Cases told me yesterday. “And six are incredibly cash-efficient … they have become a unicorn with less than $70 million of investment.”

Nine of the unicorns are in Scott Brinker’s “marketing experiences” category, with names like EventBrite, Sprinklr, and Hootsuite. Eight are in the backbone category, including marketing automation powerhouses Marketo and HubSpot, along with DemandWare and Shopify.

Another eight are in marketing operations, and four are in middleware.

Most of the companies required investment of between $100 million and 200 million to reach the coveted billion-dollar status of “unicorn,” but some were more more cash-efficient, as Cases said. Tableau is the all-star in that category: The company required an astonishingly small $15 million of capital to reach its join-the-unicorns-club moment when it hit a $1.8 billion valuation, and the company is currently valued at almost $7 billion.

That efficiency means its exit-to-funding dollar ratio was an astonishing 119 to one — more than twice the next-nearest unicorn, Shopify.

Going public seems to be the exit of choice for unicorns.

“Of the 29 unicorns there have been 19 IPOs, meaning that the majority are public companies,” Cases said. “Not that many companies have been acquired.”

Marketing tech has seen more than its share of acquisitions in past years, of course, but munching down a billion-dollar-plus purchase is challenging even for the biggest companies in the space. Only 14 percent of martech unicorns have been acquired, while 28 percent are still private, and 10 percent were bought out.

Interestingly, regardless of the exact industry a player is in, the amount of funding it takes to become a unicorn is relatively consistent, Cases said.

For eager investors looking to score in a future IPO, the eight still-private martech unicorns might be tempting. That list includes Domo, Slack, Sprinklr, Shopify, and EventBrite, all of which have “unicorned,” or surpassed the billion-dollar valuation mark, in the past year or two.

There could be some debate about the meaning of “unicorns” in this context.

Cases said Spoke looked at martech companies that are less than 25 years old, but the vast majority of the companies were founded much more recently than that. (Other analysts have limited themselves to more recent startups — less than five years old — that have joined the billion-dollar club.) Half of the companies on the VBprofiles list hit unicorn status in eight years. The youngest, Tibco, hit it in three years, while the oldest hit it in 17 years.

There’s likely to be more martech unicorns in the next few years. Investment in the space reached $3 billion in just the first quarter of this year — the lion’s share of which went into analytics startups as companies are doing their best to wrestle with the massive amount of data that marketing tech is generating.

This is just the first analysis in what Cases promises will be a long list from VBprofiles and Spoke Intelligence, VB Profiles’ parent company. The full e-book with all the details is available at VBprofiles.

]]>http://venturebeat.com/2015/04/30/29-martech-unicorns-there-are-now-almost-30-1b-marketing-technology-vendors/feed/0171404529 martech unicorns: There are now almost 30 $1B+ marketing technology vendors